UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
   
þ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJune 30, 20182019
or
   
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission file number: 1-8923
WELLTOWER INC.
 
(Exact name of registrant as specified in its charter) 
Delaware34-1096634
(State or other jurisdiction

of Incorporation)
(IRS Employer
Identification No.)
 
(IRS Employer
Identification No.)
   
4500 Dorr StreetToledo,Ohio 43615
(Address of principal executive offices)(Zip Code)
   
(419)247-2800
(Registrant’s telephone number, including area code)  
   
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $1.00 par value per shareWELLNew York Stock Exchange
4.800% Notes due 2028WELL28New York Stock Exchange
4.500% Notes due 2034WELL34New 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. Yesþ  No  ¨
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ  No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
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.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No  þ
As of July 27, 2018,19, 2019, the registrant had 372,027,784405,246,816 shares of common stock outstanding. 



TABLE OF CONTENTS
 
 Page
PART I. FINANCIAL INFORMATION 
  
Item 1. Financial Statements (Unaudited) 
  
Consolidated Balance Sheets —- June 30, 20182019 and December 31, 20172018
3
  
Consolidated Statements of Comprehensive Income —- Three and six months ended June 30, 20182019 and 20172018
4
  
Consolidated Statements of Equity — Six- Three and six months ended June 30, 20182019 and 20172018
6
  
Consolidated Statements of Cash Flows —- Six months ended June 30, 20182019 and 20172018
7
  
Notes to Unaudited Consolidated Financial Statements
8
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2728
  
Item 3. Quantitative and Qualitative Disclosures About Market Risk
5150
  
Item 4. Controls and Procedures
5251
  
PART II. OTHER INFORMATION 
  
Item 1. Legal Proceedings
5251
  
Item 1A. Risk Factors
52
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
52
  
Item 5. Other Information
52
  
Item 6. Exhibits
53
  
Signatures
53



PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
CONSOLIDATED BALANCE SHEETS
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
 June 30, 2018 (Unaudited) December 31, 2017 (Note) June 30, 2019 (Unaudited) December 31, 2018 (Note)
Assets:
        
Real estate investments:
        
Real property owned:         
Land and land improvements  $2,746,046
 $2,734,467
 $3,337,234
 $3,205,091
Buildings and improvements  25,443,106
 25,373,117
 28,691,274
 28,019,502
Acquired lease intangibles  1,534,755
 1,502,471
 1,589,138
 1,581,159
Real property held for sale, net of accumulated depreciation  547,321
 734,147
 1,704,206
 590,271
Construction in progress  200,569
 237,746
 363,160
 194,365
Gross real property owned  30,471,797
 30,581,948
Less accumulated depreciation and amortization  (5,113,928) (4,838,370) (5,539,435) (5,499,958)
Net real property owned  25,357,869
 25,743,578
 30,145,577
 28,090,430
Real estate loans receivable  449,467
 495,871
Less allowance for losses on loans receivable  (68,372) (68,372)
Net real estate loans receivable  381,095
 427,499
Right of use assets, net 550,342
 —
Real estate loans receivable, net of allowance  368,994
 330,339
Net real estate investments  25,738,964
 26,171,077
 31,064,913
 28,420,769
Other assets:
        
Investments in unconsolidated entities  450,027
 445,585
 519,387
 482,914
Goodwill  68,321
 68,321
 68,321
 68,321
Cash and cash equivalents  215,120
 243,777
 268,666
 215,376
Restricted cash  57,263
 65,526
 91,052
 100,753
Straight-line rent receivable 367,358
 389,168
 419,501
 367,093
Receivables and other assets  721,929
 560,991
 716,857
 686,846
Total other assets  1,880,018
 1,773,368
 2,083,784
 1,921,303
Total assets
 $27,618,982
 $27,944,445
 $33,148,697
 $30,342,072
        
Liabilities and equity
        
Liabilities:
        
Borrowings under primary unsecured credit facility  $540,000
 $719,000
Unsecured credit facility and commercial paper $1,869,188
 $1,147,000
Senior unsecured notes  8,373,774
 8,331,722
 10,606,106
 9,603,299
Secured debt  2,450,483
 2,608,976
 2,675,507
 2,476,177
Capital lease obligations  71,302
 72,238
Lease liabilities 469,029
 70,668
Accrued expenses and other liabilities  984,779
 911,863
 1,076,061
 1,034,283
Total liabilities
 12,420,338
 12,643,799
 16,695,891
 14,331,427
Redeemable noncontrolling interests
 398,157
 375,194
 483,234
 424,046
Equity:
        
Preferred stock  718,498
 718,503
 —
 718,498
Common stock  372,801
 372,449
 406,014
 384,465
Capital in excess of par value  17,661,384
 17,662,681
 19,740,145
 18,424,368
Treasury stock  (68,661) (64,559) (74,042) (68,499)
Cumulative net income  5,932,035
 5,316,580
 6,539,766
 6,121,534
Cumulative dividends  (10,142,162) (9,471,712) (11,516,994) (10,818,557)
Accumulated other comprehensive income (loss)  (132,631) (111,465) (100,622) (129,769)
Other equity  659
 670
 188
 294
Total Welltower Inc. stockholders’ equity  14,341,923
 14,423,147
 14,994,455
 14,632,334
Noncontrolling interests  458,564
 502,305
 975,117
 954,265
Total equity
 14,800,487
 14,925,452
 15,969,572
 15,586,599
Total liabilities and equity
 $27,618,982
 $27,944,445
 $33,148,697
 $30,342,072
NOTE: The consolidated balance sheet at December 31, 20172018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.




3


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands, except per share data) 
 Three Months Ended Six Months Ended
 Three Months Ended June 30, Six Months Ended June 30, June 30, June 30,
 2018 2017 2018 2017 2019 2018 2019 2018
Revenues:                
Resident fees and services $914,085
 $763,345
 $1,782,370
 $1,499,279
Rental income  $333,601
 $355,599
 $676,970
 $722,741
 385,586
 333,601
 766,670
 676,970
Resident fees and services 763,345
 677,040
 1,499,279
 1,347,377
Interest income 13,462
 20,901
 28,110
 41,649
 17,356
 13,462
 32,475
 28,110
Other income 15,504
 5,062
 18,518
 9,133
 3,079
 15,504
 10,836
 18,518
Total revenues 1,125,912
 1,058,602

2,222,877

2,120,900
 1,320,106
 1,125,912

2,592,351

2,222,877
                
Expenses:                
Interest expense 121,416
 116,231
 244,191
 234,827
Property operating expenses 568,751
 501,855
 1,125,216
 1,012,024
 701,127
 568,751
 1,371,934
 1,125,216
Depreciation and amortization 236,275
 224,847
 464,476
 453,124
 248,052
 236,275
 491,984
 464,476
General and administrative 32,831
 32,632
 66,536
 63,733
Interest expense 141,336
 121,416
 286,568
 244,191
General and administrative expenses 33,741
 32,831
 69,023
 66,536
Loss (gain) on derivatives and financial instruments, net (7,460) 736
 (14,633) 1,960
 1,913
 (7,460) (574) (14,633)
Loss (gain) on extinguishment of debt, net 299
 5,515
 12,006
 36,870
 —
 299
 15,719
 12,006
Provision for loan losses —
 —
 18,690
 —
Impairment of assets 4,632
 13,631
 32,817
 24,662
 9,939
 4,632
 9,939
 32,817
Other expenses 10,058
 6,339
 13,770
 18,014
 21,628
 10,058
 30,384
 13,770
Total expenses 966,802
 901,786
 1,944,379
 1,845,214
 1,157,736
 966,802
 2,293,667
 1,944,379
                
Income (loss) from continuing operations before income taxes        
and income from unconsolidated entities 159,110
 156,816
 278,498
 275,686
Income (loss) from continuing operations before income taxes and other items 162,370
 159,110
 298,684
 278,498
Income tax (expense) benefit (3,841) 8,448
 (5,429) 6,203
 (1,599) (3,841) (3,821) (5,429)
Income (loss) from unconsolidated entities 1,249
 (3,978) (1,180) (27,084) (9,049) 1,249
 (18,248) (1,180)
Gain (loss) on real estate dispositions, net (1,682) 10,755
 165,727
 348,939
Income (loss) from continuing operations 156,518
 161,286
 271,889
 254,805
 150,040
 167,273
 442,342
 620,828
Gain (loss) on real estate dispositions, net 10,755
 42,155
 348,939
 286,247
        
Net income 167,273
 203,441
 620,828
 541,052
 150,040
 167,273
 442,342
 620,828
Less: Preferred stock dividends 11,676
 11,680
 23,352
 26,059
 —
 11,676
 —
 23,352
Less: Preferred stock redemption charge —
 —
 —
 9,769
Less: Net income (loss) attributable to noncontrolling interests(1)
 1,165
 3,332
 5,373
 4,156
 12,278
 1,165
 24,110
 5,373
Net income (loss) attributable to common stockholders $154,432
 $188,429
 $592,103
 $501,068
 $137,762
 $154,432
 $418,232
 $592,103
                
Average number of common shares outstanding:                
Basic 371,640
 366,524
 371,552
 364,551
 404,607
 371,640
 398,073
 371,552
Diluted 373,075
 368,149
 373,186
 366,423
 406,673
 373,075
 400,096
 373,186
                
Earnings per share:                
Basic:                
Income (loss) from continuing operations $0.42
 $0.44
 $0.73
 $0.70
 $0.37
 $0.45
 $1.11
 $1.67
Net income (loss) attributable to common stockholders $0.42
 $0.51
 $1.59
 $1.37
 $0.34
 $0.42
 $1.05
 $1.59
        
Diluted:                
Income (loss) from continuing operations $0.42
 $0.44
 $0.73
 $0.70
 $0.37
 $0.45
 $1.11
 $1.66
Net income (loss) attributable to common stockholders $0.41
 $0.51
 $1.59
 $1.37
 $0.34
 $0.41
 $1.05
 $1.59
                
Dividends declared and paid per common share $0.87
 $0.87
 $1.74
 $1.74
 $0.87
 $0.87
 $1.74
 $1.74
(1) Includes amounts attributable to redeemable noncontrolling interests.




4


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands) 
 Three Months Ended Six Months Ended
 Three Months Ended June 30, Six Months Ended June 30, June 30, June 30,
 2018 2017 2018 2017 2019 2018 2019 2018
Net income $167,273
 $203,441
 $620,828
 $541,052
 $150,040
 $167,273
 $442,342
 $620,828
                
Other comprehensive income (loss):                
Unrecognized gain (loss) on available-for-sale securities —
 (5,908) —
 (16,477)
Foreign currency translation gain (loss) (50,123) 27,713
 (33,797) 33,426
 (54,024) (200,826) 24,596
 (121,802)
Derivative instruments gain (loss) 100,407
 150,703
 12,725
 88,005
Total other comprehensive income (loss) (50,123) 21,805
 (33,797) 16,949
 46,383
 (50,123) 37,321
 (33,797)
                
Total comprehensive income (loss) 117,150
 225,246
 587,031
 558,001
 196,423
 117,150
 479,663
 587,031
Less: Total comprehensive income (loss) attributable
to noncontrolling interests(1)
 (7,580) 11,562
 (7,258) 15,198
 14,665
 (7,580) 32,284
 (7,258)
Total comprehensive income (loss) attributable to common stockholders $124,730
 $213,684
 $594,289
 $542,803
 $181,758
 $124,730
 $447,379
 $594,289
                
(1) Includes amounts attributable to redeemable noncontrolling interests.                




5


CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
  Six Months Ended June 30, 2019
  
Preferred
Stock
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Treasury
Stock
 
Cumulative
Net Income
 
Cumulative
Dividends
 
Accumulated Other
Comprehensive
Income (Loss)
 
Other
Equity
 
Noncontrolling
Interests
 Total
Balances at December 31, 2018 $718,498
 $384,465
 $18,424,368
 $(68,499) $6,121,534
 $(10,818,557) $(129,769) $294
 $954,265
 $15,586,599
Comprehensive income:                    
Net income (loss) 

 
 
 
 280,470
 
 
 
 10,785
 291,255
Other comprehensive income 

 
 
 
 
 
 (14,849) 
 5,787
 (9,062)
Total comprehensive income 

 
 
 
 
 
 
 
 
 282,193
Net change in noncontrolling interests 

   (8,845) 
 
 
 
 
 (1,497) (10,342)
Amounts related to stock incentive plans, net of forfeitures 

 120
 7,420
 (5,993) 
 
 
 (26) 
 1,521
Proceeds from issuance of common stock 

 7,212
 525,408
 
 
 
 
 
 
 532,620
Conversion of preferred stock (718,498) 12,712
 705,786
 
   
 
 
 
 —
Dividends paid:                    
Common stock dividends 

 
 
 
 
 (344,760) 
 
 
 (344,760)
Balances at March 31, 2019 $—
 $404,509
 $19,654,137
 $(74,492) $6,402,004
 $(11,163,317) $(144,618) $268
 $969,340
 $16,047,831
Comprehensive income:                   
Net income (loss) 
 
 
 
 137,762
 
 
 
 11,349
 149,111
Other comprehensive income 
 
 
 
 
 
 43,996
 
 2,387
 46,383
Total comprehensive income 
 
 
 
 
 
 
 
 
 195,494
Net change in noncontrolling interests 
   (23,672) 
 
 
 
 
 (7,959) (31,631)
Amounts related to stock incentive plans, net of forfeitures 
 18
 7,959
 450
 
 
 
 (80) 
 8,347
Proceeds from issuance of common stock 
 1,487
 101,721
 
 
 
 
 
 
 103,208
Dividends paid:                   
Common stock dividends 
 
 
 
 
 (353,677) 
 
 
 (353,677)
Balances at June 30, 2019 $—

$406,014
 $19,740,145
 $(74,042) $6,539,766
 $(11,516,994) $(100,622) $188
 $975,117
 $15,969,572
  Six Months Ended June 30, 2018
  Preferred
Stock		 Common
Stock		 Capital in
Excess of
Par Value		 Treasury
Stock		 Cumulative
Net Income		 Cumulative
Dividends		 Accumulated Other
Comprehensive
Income (Loss)		 Other
Equity		 Noncontrolling
Interests		 Total
Balances at December 31, 2017 $718,503
 $372,449
 $17,662,681
 $(64,559) $5,316,580
 $(9,471,712) $(111,465) $670
 $502,305
 $14,925,452
Comprehensive income:                   
Net income (loss) 
 
 
 
 449,347
 
 
 
 5,191
 454,538
Other comprehensive income 
 
 
 
 
 
 20,212
 
 (3,886) 16,326
Total comprehensive income 
 
 
 
 
 
 
 
 
 470,864
Net change in noncontrolling interests 
   (13,157) 
 
 
 
 
 (2,719) (15,876)
Amounts related to stock incentive plans, net of forfeitures 
 150
 11,085
 (4,137) 
 
 
 
 
 7,098
Proceeds from issuance of common stock 
 130
 7,060
 
 
 
 
 
 
 7,190
Conversion of preferred stock (5) 
 5
 
   
 
 

 
 —
Dividends paid:                    
Common stock dividends 
 
 
 
 
 (323,726) 
 
 
 (323,726)
Preferred stock dividends 
 
 
 
 
 (11,676) 
 
 
 (11,676)
Balances at March 31, 2018 $718,498
 $372,729
 $17,667,674
 $(68,696) $5,765,927
 $(9,807,114) $(91,253) $670
 $500,891
 $15,059,326
Comprehensive income:                    
Net income (loss) 

 

 

 

 166,108
 

 

 

 2,355
 168,463
Other comprehensive income 

 

 

 

 

 

 (41,378) 

 (8,745) (50,123)
Total comprehensive income 

 

 

 

 

 

 

 

 

 118,340
Net change in noncontrolling interests 

  
 (14,822) 

 

 

 

 

 (35,937) (50,759)
Amounts related to stock incentive plans, net of forfeitures 

 18
 5,801
 35
 

 

 

 (11) 

 5,843
Proceeds from issuance of common stock 

 54
 2,731
 

 

 

 

 

 

 2,785
Dividends paid:                    
Common stock dividends 

 

 

 

 

 (323,372) 

 

 

 (323,372)
Preferred stock dividends 

 

 

 

 

 (11,676) 

 

 

 (11,676)
Balances at June 30, 2018 $718,498
 $372,801
 $17,661,384
 $(68,661) $5,932,035
 $(10,142,162) $(132,631) $659
 $458,564
 $14,800,487
  Six Months Ended June 30, 2018
              Accumulated      
  
Preferred
Stock
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Treasury
Stock
 
Cumulative
Net Income
 
Cumulative
Dividends
 
Other
Comprehensive
Income (Loss)
 
Other
Equity
 
Noncontrolling
Interests
 Total
Balances at beginning of period $718,503
 $372,449
 $17,662,681
 $(64,559) $5,316,580
 $(9,471,712) $(111,465) $670
 $502,305
 $14,925,452
Comprehensive income:                   
Net income (loss)         615,455
       7,546
 623,001
Other comprehensive income             (21,166)   (12,631) (33,797)
Total comprehensive income                   589,204
Net change in noncontrolling interests     (27,979)           (38,656) (66,635)
Amounts related to stock incentive plans, net of forfeitures   168
 16,886
 (4,102)       (11)   12,941
Proceeds from issuance of common stock   184
 9,791
             9,975
Conversion of preferred stock (5)   5
             —
Dividends paid:                   
Common stock dividends           (647,098)       (647,098)
Preferred stock dividends           (23,352)       (23,352)
Balances at end of period $718,498
 $372,801
 $17,661,384
 $(68,661) $5,932,035
 $(10,142,162) $(132,631) $659
 $458,564
 $14,800,487
                     
  Six Months Ended June 30, 2017
              Accumulated      
      Capital in       Other      
  Preferred Common Excess of Treasury Cumulative Cumulative Comprehensive Other Noncontrolling  
  Stock Stock Par Value Stock Net Income Dividends Income (Loss) Equity Interests Total
Balances at beginning of period $1,006,250
 $363,071
 $16,999,691
 $(54,741) $4,803,575
 $(8,144,981) $(169,531) $3,059
 $475,079
 $15,281,472
Comprehensive income:                   
Net income (loss)         536,896
       5,302
 542,198
Other comprehensive income             5,907
   11,042
 16,949
Total comprehensive income                   559,147
Net change in noncontrolling interests     (4,247)           (6,732) (10,979)
Amounts related to stock incentive plans, net of forfeitures   337
 11,803
 (7,583)       (1,896)   2,661
Proceeds from issuance of common stock   6,026
 417,506
             423,532
Redemption of preferred stock (287,500)   9,760
   (9,769)         (287,509)
Redemption of equity membership units   91
 5,464
 (11)           5,544
Option compensation expense               10
   10
Dividends paid:                   
Common stock dividends           (634,296)       (634,296)
Preferred stock dividends           (26,059)       (26,059)
Balances at end of period $718,750
 $369,525
 $17,439,977
 $(62,335) $5,330,702
 $(8,805,336) $(163,624) $1,173
 $484,691
 $15,313,523




6


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
WELLTOWER INC. AND SUBSIDIARIES
(In thousands)
 Six Months Ended
 Six Months Ended June 30, June 30,
 2018 2017 2019 2018
Operating activities:   
  
  
  
Net income  $620,828
 $541,052
 $442,342
 $620,828
Adjustments to reconcile net income to net cash provided from (used in) operating activities:         
Depreciation and amortization  464,476
 453,124
 491,984
 464,476
Other amortization expenses  7,984
 7,789
 9,761
 7,984
Provision for loan losses 18,690
 —
Impairment of assets  32,817
 24,662
 9,939
 32,817
Stock-based compensation expense  16,725
 9,669
 15,192
 16,725
Loss (gain) on derivatives and financial instruments, net  (14,633) 1,960
 (574) (14,633)
Loss (gain) on extinguishment of debt, net  12,006
 36,870
 15,719
 12,006
Loss (income) from unconsolidated entities 1,180
 27,084
 18,248
 1,180
Rental income less than (in excess of) cash received  13,544
 (41,325) (53,234) 13,544
Amortization related to above (below) market leases, net  1,363
 48
 (2) 1,363
Loss (gain) on real estate dispositions, net  (348,939) (286,247) (165,727) (348,939)
Distributions by unconsolidated entities 21
 3,225
 46
 21
Increase (decrease) in accrued expenses and other liabilities  46,718
 70,005
 55,415
 46,718
Decrease (increase) in receivables and other assets  (15,666) (3,807) (3,317) (15,666)
Net cash provided from (used in) operating activities  838,424

844,109
 854,482

838,424
    
    
Investing activities:         
Cash disbursed for acquisitions  (595,596) (237,119) (2,718,808) (595,596)
Cash disbursed for capital improvements to existing properties (111,332) (93,147) (124,176) (111,332)
Cash disbursed for construction in progress (62,978) (149,046) (155,409) (62,978)
Capitalized interest  (4,436) (7,488) (6,256) (4,436)
Investment in real estate loans receivable  (48,291) (50,717) (62,935) (48,291)
Principal collected on real estate loans receivable  91,427
 36,500
 6,840
 91,427
Other investments, net of payments  (48,212) 52,457
 (17,640) (48,212)
Contributions to unconsolidated entities  (32,768) (65,631) (119,001) (32,768)
Distributions by unconsolidated entities  22,897
 47,384
 70,844
 22,897
Proceeds from (payments on) derivatives  (27,678) 19,665
 (21,643) (27,678)
Proceeds from sales of real property  947,218
 1,203,782
 616,820
 947,218
Net cash provided from (used in) investing activities  130,251

756,640
 (2,531,364)
130,251
        
Financing activities:         
Net increase (decrease) under unsecured credit facilities  (179,000) (260,000)
Net increase (decrease) in unsecured credit facility and commercial paper 722,188
 (179,000)
Proceeds from issuance of senior unsecured notes 545,074
 —
 2,036,964
 545,074
Payments to extinguish senior unsecured notes  (450,000) —
 (1,050,000) (450,000)
Net proceeds from the issuance of secured debt  44,606
 161,799
 295,969
 44,606
Payments on secured debt  (224,958) (1,020,129) (178,700) (224,958)
Net proceeds from the issuance of common stock  10,188
 424,451
 647,156
 10,188
Redemption of preferred stock  —
 (287,500)
Payments for deferred financing costs and prepayment penalties  (18,639) (52,838) (24,177) (18,639)
Contributions by noncontrolling interests(1)
 8,421
 9,663
 39,122
 8,421
Distributions to noncontrolling interests(1)
 (59,484) (38,143) (64,004) (59,484)
Cash distributions to stockholders  (670,859) (660,355) (695,099) (670,859)
Other financing activities (5,639) (8,925) (8,615) (5,639)
Net cash provided from (used in) financing activities  (1,000,290)
(1,731,977) 1,720,804

(1,000,290)
Effect of foreign currency translation on cash, cash equivalents and restricted cash (5,305)
11,649
 (333)
(5,305)
Increase (decrease) in cash, cash equivalents and restricted cash  (36,920) (119,579) 43,589
 (36,920)
Cash, cash equivalents and restricted cash at beginning of period  309,303

607,220
 316,129

309,303
Cash, cash equivalents and restricted cash at end of period  $272,383
 $487,641
 $359,718
 $272,383
        
Supplemental cash flow information:        
Interest paid $209,156
 $210,184
 $252,714
 $209,156
Income taxes paid (received), net 4,835
 4,360
 2,040
 4,835
        
(1) Includes amounts attributable to redeemable noncontrolling interests.        




7
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 companyCompany 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.  
2. Accounting Policies and Related Matters
Basis of Presentation
     The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 20182019 are not necessarily an indication of the results that may be expected for the year ending December 31, 2018.2019. 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, 2017.2018.
New Accounting Standards
We adopted the following accounting standards, each of which did not have a material impact on our consolidated financial statements:
In 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (ASC 606),” which is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services.  We adopted ASC 606 on January 1, 2018 using the modified retrospective method of adoption.  This guidance did not have a significant impact on our consolidated financial statements.
We have evaluated our various revenue streams to identify whether they would be subject to the provisions of ASC 606 and any differences in timing, measurement or presentation of revenue recognition.  A significant source of our revenue is generated through leasing arrangements, which are specifically excluded from ASC 606.  Management contracts are present in our seniors housing operating and outpatient medical segments and represent agreements to provide asset and property management, leasing, marketing and other services.  Under ASC 606, the pattern and timing of recognition of income from these contracts is consistent with the prior accounting model. 
In 2017, the FASB issued ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”  The standard clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset.  The standard also defines the term “in substance nonfinancial asset” and clarifies that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control over it.  We adopted Subtopic 610-20 using a modified retrospective approach on January 1, 2018 and it did not have a material impact on our consolidated financial statements.
In 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which requires entities to measure their investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception.  The practicability exception is available for equity investments that do not have readily determinable fair values. This standard requires us to recognize gains and losses from changes in the fair value of our available-for-sale equity securities through the consolidated statement of comprehensive income rather than through accumulated other comprehensive income.  During the six months ended June 30, 2018, we recognized a gain of $14,633,000 in loss (gain) on derivatives and financial instruments, net on the Consolidated Statement of Comprehensive Income. There was no adjustment to accumulated other comprehensive income upon adoption at January 1, 2018 as accumulated losses were recognized as other-than-temporary impairment during the year ended December 31, 2017.
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2017, we adopted ASU No. 2016-18, “Restricted Cash,” and ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.”  ASU No. 2016-18 requires an entity to reconcile and explain the period over period change in total cash, cash equivalents and restricted cash within its consolidated statement of cash flows and ASU 2016-15 provides guidance clarifying how certain cash receipts and cash payments should be classified.  We adopted these accounting standards retrospectively and, accordingly, certain line items in the consolidated statement of cash flows have been reclassified to conform to the current presentation.  The following table summarizes the change in cash flows as reported and as previously reported prior to the adoption of these standards for the six months ended June 30, 2017 (in thousands):
  As Reported 
As Previously
Reported
Decrease (increase) in restricted cash $—
 $142,485
Net cash provided from (used in) investing activities 756,640
 899,125
Increase (decrease) in balance(1)
 (119,579) 22,906
Balance at beginning of period(1)
 607,220
 419,378
Balance at end of period(1)
 487,641
 442,284
(1) Amounts in As Reported column include cash and cash equivalents and restricted cash as required.  Amounts in the As Previously Reported column reflect only cash and cash equivalents.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. It also includes certain targeted improvements to simplify the application of current guidance related to hedge accounting. The early adoption of this standard on April 1, 2018, did not result in a cumulative effect adjustment and all applicable changes for the company were prospectively made. Please refer to Note 11 of the consolidated financial statements for additional detail on this adoption.
 The following ASUs have been issued but not yet adopted:
In 2016, the FASB issued ASU No. 2016-02, “LeasesLeases (Topic 842),” ("ASC 842") which requires lessees to recognize assets and liabilities on their consolidated balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their consolidated statementsstatement of comprehensive income over the lease term. It willWe adopted ASC 842 as of January 1, 2019, using the modified retrospective approach and have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits us to carry forward our prior conclusions for lease classification and initial direct costs on existing leases. We also require disclosures designedmade an accounting policy election to give financial statement users information regarding amount, timing, and uncertaintykeep short-term leases less than twelve months off the balance sheet for all classes of cash flows arising from leases.  Theunderlying assets.
In July 2018, the FASB issued ASU 2018-11 "Leases (Topic 842): Targeted Improvements" that (1) simplifies transition requirements for both lessees and lessors by adding an option that permits entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in July 2018, which providesits financial statements and (2) allows lessors withto elect, as a practical expedient, by class of underlying assets, to not separate lease and non-lease components from the related lease components,in a contract, and instead to account for those components as a single lease component, if certain criteria are met. This practical expedient causes an entity to assess whether a contract is predominantly lease or service-based and recognize the entire contract under the relevant accounting guidance (i.e. predominantly lease-based would be accounted for under ASC 842 and predominantly service-based would be accounted for under ASU 2016-02 is effective2014-09, "Revenue from Contracts with Customers (ASC 606)"). For the year ended December 31, 2018, we recognized revenue for usour Seniors Housing Operating resident agreements in accordance with the provisions of the prior lease guidance, ASC 840, "Leases." Upon adoption of ASC 842, we elected the lessor practical expedient described above and recognized revenue for our Seniors Housing Operating segment based upon the predominant component, the non-lease service component. Therefore, beginning on January 1, 2019, with early adoption permitted.  Entitieswe accounted for these resident agreements under ASC 606. The timing and pattern of revenue recognition is substantially the same as that prior to adoption.
The FASB also issued ASU 2018-20 "Leases (Topic 842) - Narrow Improvements for Lessors," which provides lessors the ability to make an accounting policy election not to evaluate whether certain sales taxes and other similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are required to use a modified retrospective approach for leases that exist or are entered into after the beginningprimary obligation of the earliest comparative period inlessor as owner of the consolidated financial statements.  ASU 2018-11 also provides aunderlying leased asset. A lessor that makes this election will exclude these taxes from the measurement of lease revenue and the associated expense. Upon adoption of ASC 842, we utilized this practical expedient that allows companiesin instances in which real estate taxes are paid directly by our tenants to use an optional transition method. Undertaxing authorities. For triple-net leasing arrangements in which the optional transition method, a cumulative adjustmenttenant remits payment for real estate taxes to retained earnings duringus and we pay the periodtaxing authority, we have included the associated revenue and expense in rental income and property operating expenses on the Consolidated Statements of adoption is recorded and prior periods would not require restatement. We are currently evaluating theComprehensive Income. This reporting had no impact of this guidance on our consolidated financial statements from bothnet income.
For leases in which the Company is the lessee, primarily consisting of ground leases and lessor perspective.various office and equipment leases, we recognized upon adoption a right of use asset of $509,386,000 which included the present value of minimum leases payments, existing above and/or below market lease intangible values and existing straight-line rent liabilities

8
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

associated with such leases. We believe that adoption will likely have a material impact to our consolidated financial statements for the recognition of certainalso recognized operating leases as right-of-use assets and lease liabilities and related amortization.  We expect to utilize the practical expedients inof $357,070,000. The standard did not materially impact our Consolidated Statements of Comprehensive Income or our Consolidated Statement of Cash Flows. See Note 6 for additional details.
The following ASU 2018-11 as part of our adoption of this guidance. has been issued but not yet adopted:
In 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.”Instruments" ("ASU 2016-13"). This standard requires a new forward-looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the new leases standard from the scope of the new credit losses standard. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements. 
3. Real Property Acquisitions and Development
The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their relative fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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”other expenses on our Consolidated Statements of Comprehensive Income. Certain of our subsidiaries’subsidiaries�� functional currencies are the local currencies of their respective countries.
Triple-net ActivityThe following is a summary of our real property investment activity by segment for the periods presented (in thousands):
  Six Months EndedSix Months Ended
(In thousands) June 30, 2018 June 30, 2017
June 30, 2019 June 30, 2018
Seniors Housing Operating Triple-net Outpatient
Medical		 Totals Seniors Housing Operating Triple-net Outpatient
Medical		 Totals
Land and land improvementsLand and land improvements $1,691
 $30,440
$103,743
 $8,099
 $132,154
 $243,996
 $47,865
 $1,691
 $7,369
 $56,925
Buildings and improvementsBuildings and improvements —
 188,569
1,109,966
 96,244
 1,198,608
 2,404,818
 535,921
 —
 42,673
 578,594
Total assets acquired 1,691
 219,009
Acquired lease intangibles58,773
 —
 85,492
 144,265
 68,084
 —
 5,852
 73,936
Construction in progress36,174
 —
 —
 36,174
 —
 —
 —
 —
Right of use assets, net—
 —
 56,073
 56,073
 —
 —
 —
 —
Receivables and other assets4,560
 —
 376
 4,936
 1,255
 —
 1
 1,256
Total assets acquired(1)
1,313,216
 104,343
 1,472,703
 2,890,262
 653,125
 1,691
 55,895
 710,711
Secured debt(43,209) —
 —
 (43,209) (89,973) —
 —
 (89,973)
Lease liabilities—
 —
 (45,287) (45,287) —
 —
 —
 —
Accrued expenses and other liabilities
Accrued expenses and other liabilities
 (6) (20,855)(8,677) —
 (22,506) (31,183) (14,686) (6) (632) (15,324)
Total liabilities assumed (6) (20,855)
Total liabilities acquired(51,886) —
 (67,793) (119,679) (104,659) (6) (632) (105,297)
Noncontrolling interestsNoncontrolling interests —
 (7,284)(38,830) (1,056) —
 (39,886) (9,818) —
 —
 (9,818)
Non-cash acquisition related activity(1)
 —
 (54,989)
Cash disbursed for acquisitions(2)
 1,685
 135,881
Non-cash acquisition related activity(2)
(11,889) —
 —
 (11,889) —
 —
 —
 —
Cash disbursed for acquisitions1,210,611
 103,287
 1,404,910
 2,718,808
 538,648
 1,685
 55,263
 595,596
Construction in progress additionsConstruction in progress additions 38,238
 76,245
110,761
 24,066
 26,587
 161,414
 20,704
 38,238
 11,319
 70,261
Less:Capitalized interest (1,432) (3,215)
Foreign currency translation 132
 (3,044)
Less: Capitalized interest(3,560) (908) (1,788) (6,256) (1,783) (1,432) (1,221) (4,436)
Foreign currency translation141
 65
 —
 206
 1,176
 132
 —
 1,308
Accruals(3)
—
 —
 45
 45
 —
 —
 (4,155) (4,155)
Cash disbursed for construction in progressCash disbursed for construction in progress 36,938
 69,986
107,342
 23,223
 24,844
 155,409
 20,097
 36,938
 5,943
 62,978
Capital improvements to existing propertiesCapital improvements to existing properties 8,569
 15,269
97,867
 7,423
 18,886
 124,176
 76,237
 8,569
 26,526
 111,332
Total cash invested in real property, net of cash acquired $47,192
 $221,136
Total cash invested in real property, net of cash acquired$1,415,820
 $133,933
 $1,448,640
 $2,998,393
 $634,982
 $47,192
 $87,732
 $769,906
(1) For the six months ended June 30, 2017, $54,989,000 is related to the acquisition of assets previously financed as a real estate loan receivable.
(2) Primarily represents land acquired on an existing property during the six months ended June 30, 2018.


Seniors Housing Operating Activity
   Six Months Ended
(In thousands) June 30, 2018 June 30, 2017
Land and land improvements $47,865
 $10,590
Building and improvements 535,921
 69,056
Acquired lease intangibles 68,084
 3,596
Receivables and other assets 1,255
 296
  
Total assets acquired(1)
 653,125
 83,538
Secured debt (89,973) —
Accrued expenses and other liabilities  
 (14,686) (8,606)
 Total liabilities assumed (104,659) (8,606)
Noncontrolling interests (9,818) (647)
Non-cash acquisition related activity(2)
 —
 (31,546)
 Cash disbursed for acquisitions 538,648
 42,739
Construction in progress additions 20,704
 42,787
Less:Capitalized interest (1,783) (3,804)
 Foreign currency translation 1,176
 3,060
Cash disbursed for construction in progress 20,097
 42,043
Capital improvements to existing properties 76,237
 60,129
 Total cash invested in real property, net of cash acquired $634,982
 $144,911
(1) Excludes $2,442,000$ 1,910,000 and $400,000of unrestricted and restricted cash acquired during the six months ended June 30, 2018 and 2017, respectively.
(2) Includes $6,349,000 related to the acquisition of assets previously financed as real estate loans receivable and $25,197,000 previously financed as an investment in an unconsolidated entity during the six months ended June 30, 2017.

WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Outpatient Medical Activity
   Six Months Ended
(In thousands) June 30, 2018 June 30, 2017
Land and land improvements $7,369
 $25,060
Buildings and improvements 42,673
 62,038
Acquired lease intangibles 5,852
 8,397
Receivables and other assets 1
 118
  
Total assets acquired(1)
 55,895
 95,613
Secured debt —
 (25,824)
Accrued expenses and other liabilities (632) (2,210)
 
Total liabilities assumed  
 (632) (28,034)
Noncontrolling interests —
 (9,080)
 Cash disbursed for acquisitions 55,263
 58,499
Construction in progress additions 11,319
 31,830
Less:Capitalized interest (1,221) (1,343)
 
Accruals(2)
 (4,155) 6,530
Cash disbursed for construction in progress 5,943
 37,017
Capital improvements to existing properties 26,526
 17,409
 Total cash invested in real property $87,732
 $112,925
(1) Excludes $1,950,000 and $0$4,392,000 of unrestricted and restricted cash acquired during the six months ended June 30, 2019 and 2018, and 2017, respectively.
(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.



9
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Construction Activity
The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):
  Six Months Ended
  June 30, 2018 June 30, 2017
Development projects:    
Triple-net $59,188
 266,650
Seniors housing operating 37,215
 3,634
Outpatient medical 11,358
 63,036
Total development projects 107,761
 333,320
Expansion projects —
 2,798
Total construction in progress conversions $107,761
 $336,118
  Six Months Ended
  June 30, 2019 June 30, 2018
Development projects:    
Seniors Housing Operating $28,117
 $37,215
Triple-net —
 59,188
Outpatient Medical —
 11,358
Total construction in progress conversions $28,117
 $107,761
4. Real Estate Intangibles
The following is a summary of our real estate intangibles, excluding those classified as held for sale, as of the dates indicated (dollars in thousands):
WELLTOWER INC.
  June 30, 2019 December 31, 2018
Assets:    
In place lease intangibles $1,473,060
 $1,410,725
Above market tenant leases 69,656
 63,935
Below market ground leases (1)
 —
 64,513
Lease commissions 46,422
 41,986
Gross historical cost 1,589,138
 1,581,159
Accumulated amortization (1,163,936) (1,197,336)
Net book value $425,202
 $383,823
     
Weighted-average amortization period in years 8.6
 16.0
     
Liabilities:    
Below market tenant leases $94,082
 $81,676
Above market ground leases (1)
 —
 8,540
Gross historical cost 94,082
 90,216
Accumulated amortization (45,147) (44,266)
Net book value $48,935
 $45,950
     
Weighted-average amortization period in years 8.2
 14.7
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  June 30, 2018 December 31, 2017
Assets:    
In place lease intangibles $1,380,504
 $1,352,139
Above market tenant leases 58,373
 58,443
Below market ground leases 59,030
 58,784
Lease commissions 36,848
 33,105
Gross historical cost 1,534,755
 1,502,471
Accumulated amortization (1,150,396) (1,125,437)
Net book value $384,359
 $377,034
     
Weighted-average amortization period in years 14.7
 15.1
     
Liabilities:    
Below market tenant leases $71,660
 $60,430
Above market ground leases 8,540
 8,540
Gross historical cost 80,200
 68,970
Accumulated amortization (41,503) (39,629)
Net book value $38,697
 $29,341
     
Weighted-average amortization period in years 16.0
 20.1
(1) Effective on January 1, 2019 with the adoption of ASC 842, above and below market ground lease intangibles are reported within the right of use assets, net line on the Consolidated Balance Sheet.
The following is a summary of real estate intangible amortization for the periods presented (in thousands):
  Three Months Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Rental income related to above/below market tenant leases, net $(333) $267
 $(684) $571
Property operating expenses related to above/below market ground leases, net (312) (307) (679) (619)
Depreciation and amortization related to in place lease intangibles and lease commissions (33,763) (35,439) (66,024) (74,741)
  Three Months Ended June 30, Six Months Ended June 30,
   2019 2018 2019 2018
Rental income related to (above)/below market tenant leases, net $73
 $(333) $(82) $(684)
Amortization related to in place lease intangibles and lease commissions (28,518) (33,763) (53,423) (66,024)


10
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):
  Assets Liabilities
2019 $84,909
 $4,777
2020 101,374
 8,835
2021 51,215
 7,865
2022 34,495
 7,130
2023 28,361
 4,989
Thereafter 124,848
 15,339
Total $425,202
 $48,935
  Assets Liabilities
2018 $61,540
 $2,953
2019 83,254
 5,546
2020 54,511
 5,059
2021 22,985
 4,559
2022 17,996
 4,095
Thereafter 144,073
 16,485
Total $384,359
 $38,697
5. Dispositions and Assets Held for Sale
We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (e.g.(i.e., property type, relationship or geography). At June 30, 2018, 35 triple-net, 18 seniors housing operating2019, 55 Seniors Housing Operating, 30 Triple-net, and two outpatient medicalfour Outpatient Medical properties with an aggregate real estate balance of $547,321,000$1,704,206,000 were classified as held for sale. In addition, secured debt of $37,429,000 and net other assets and liabilities of $58,816,000 related to the held for sale properties. During the six months ended June 30, 2018,2019, we recorded net impairment charges of $32,817,000$9,939,000 on certain held for sale properties for which the carrying valuesvalue exceeded the fair values, less estimated costs to sell, if applicable. The following is a summary of our real property disposition activity for the periods presented (in thousands):
WELLTOWER INC.
  Six Months Ended June 30,
  2019 2018
Real estate dispositions:    
Seniors Housing Operating $8,726
 $2,200
Triple-net 442,865
 367,978
Outpatient Medical —
 223,069
Total dispositions 451,591
 593,247
Gain (loss) on real estate dispositions, net 165,727
 348,939
Net other assets/liabilities disposed (498) 5,032
Proceeds from real estate dispositions $616,820
 $947,218

  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  Six Months Ended
  June 30, 2018 June 30, 2017
Real estate dispositions:    
Triple-net $367,978
 $882,436
Seniors housing operating 2,200
 13,845
Outpatient medical 223,069
 —
Total dispositions 593,247
 896,281
Gain (loss) on real estate dispositions, net 348,939
 286,247
Net other assets/liabilities disposed 5,032
 21,254
Proceeds from real estate dispositions $947,218
 $1,203,782
Dispositions and Assets Held for Sale
Pursuant to our adoption of ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, operating results attributable to properties sold subsequent to or classified as held for sale after January 1, 2014 and which do not meet the definition of discontinued operations are no longer reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands):
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30,
 2018 2017 2018 2017 2019 2018 2019 2018
Revenues:                
Total revenues $35,236
 $60,241
 $78,459
 $135,348
 $112,694
 $121,079
 $228,441
 $249,639
Expenses: 
 
 
 
        
Interest expense 120
 1,540
 264
 4,266
 479
 579
 983
 1,200
Property operating expenses 22,364
 22,365
 45,516
 46,606
 70,244
 74,213
 146,260
 150,120
Provision for depreciation 2,555
 12,455
 6,874
 24,749
 12,520
 18,431
 24,897
 38,275
Total expenses 25,039
 36,360
 52,654
 75,621
 83,243
 93,223
 172,140
 189,595
Income (loss) from real estate dispositions, net $10,197
 $23,881
 $25,805
 $59,727
 $29,451
 $27,856
 $56,301
 $60,044

11
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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. As most of our leases do not provide a rate implicit in the lease agreement, we use our incremental borrowing rate available at lease commencement to determine the present value of lease payments. The incremental borrowing rates were determined using our longer term borrowing rates (actual pricing through 30 years, as well as other longer-term market rates). For leases that commenced prior to January 1, 2019, we used the incremental borrowing rate on December 31, 2018.
We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease with Genesis HealthCare for seven buildings.
The components of lease expense were as follows for the period presented (in thousands):
  Classification Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating lease cost: (1)
      
Real estate lease expense Property operating expenses $7,267
 $14,679
Non-real estate lease expense General and administrative expenses 408
 770
Finance lease cost:      
Amortization of leased assets Property operating expenses 2,153
 4,245
Interest on lease liabilities Interest expense 1,166
 2,169
Sublease income Rental income (1,043) (2,087)
Total   $9,951
 $19,776

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

Maturities of lease liabilities as of June 30, 2019 are as follows (in thousands):

  Operating Leases Finance Leases
2019 $9,809
 $4,488
2020 19,625
 8,821
2021 19,558
 8,485
2022 18,627
 7,852
2023 18,707
 68,967
Thereafter 1,595,101
 86,081
Total lease payments 1,681,427
 184,694
Less: Imputed interest (1,321,129) (75,963)
Total present value of lease liabilities $360,298
 $108,731



12
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Supplemental balance sheet information related to leases was as follows for the date indicated (in thousands, except lease terms and discount rate):
 Classification June 30, 2019
Right of use assets:   
Operating leases - real estateRight of use assets, net $386,061
Finance leasesRight of use assets, net 164,281
Real estate right of use assets, net  550,342
Operating leases - corporateReceivables and other assets 5,055
Total right of use assets, net  $555,397
    
Lease liabilities:   
Operating leases  $360,298
Financing leases  108,731
Total  $469,029
    
Weighted average remaining lease term (years):   
Operating leases  50.0
Finance leases  15.8
    
Weighted average discount rate:   
Operating leases  5.21%
Finance leases  5.17%


Supplemental cash flow information related to leases was as follows for the date indicated (in thousands):
 Classification Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leasesDecrease (increase) in receivables and other assets $4,627
Operating cash flows from finance leasesDecrease (increase) in receivables and other assets 3,916
Financing cash flows from finance leasesOther financing activities (1,638)


Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Leases in our outpatient medical portfolio typically include some form of operating expense reimbursement by the tenant. We recognized $766,670,000 of rental and other revenues related to operating lease payments, of which $94,017,000 was for variable lease payments for the six months ended June 30, 2019, which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. The following table sets forth the undiscounted cash flows for future minimum lease payments receivable for leases in effect at June 30, 2019 (excluding properties in our Seniors Housing Operating partnerships and excluding any operating expense reimbursements) (in thousands):

2019 $925,026
2020 1,380,111
2021 1,346,698
2022 1,237,904
2023 1,255,408
Thereafter 9,745,880
Totals $15,891,027


6.7. Real Estate Loans Receivable
Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20172018 for discussion of our accounting policies for real estate loans receivable and related interest income. 




13
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our net real estate loans receivable (in thousands):
  June 30, 2019 December 31, 2018
Mortgage loans $332,770
 $317,443
Other real estate loans 104,596
 81,268
Less allowance for losses on loans receivable (68,372) (68,372)
Totals $368,994
 $330,339

The following is a summary of our real estate loan activity for the periods presented (in thousands):
 Six Months Ended
 June 30, 2019 June 30, 2018
  Triple-net Outpatient
Medical		 Totals Seniors Housing Operating Triple-net Outpatient
Medical		 Totals
Advances on real estate loans receivable:              
Investments in new loans $25,000
 $5,000
 $30,000
 $11,806
 $8,281
 $7,022
 $27,109
Draws on existing loans 20,051
 12,884
 32,935
 —
 21,182
 —
 21,182
Net cash advances on real estate loans 45,051
 17,884
 62,935
 11,806
 29,463
 7,022
 48,291
Receipts on real estate loans receivable:              
Loan payoffs 4,384
 —
 4,384
 —
 58,557
 —
 58,557
Principal payments on loans 2,456
 —
 2,456
 —
 32,870
 —
 32,870
Net cash receipts on real estate loans 6,840
 —
 6,840
 —
 91,427
 —
 91,427
Net cash advances (receipts) on real estate loans $38,211
 $17,884
 $56,095
 $11,806
 $(61,964) $7,022
 $(43,136)
  Six Months Ended
  June 30, 2018 June 30, 2017
  Triple-net Seniors Housing Operating Outpatient
Medical		 Totals Triple-net Outpatient
Medical		 Totals
Advances on real estate loans receivable:              
Investments in new loans $8,281
 $11,806
 $7,022
 $27,109
 $10,037
 $—
 $10,037
Draws on existing loans 21,182
 —
 —
 21,182
 40,680
 —
 40,680
Net cash advances on real estate loans 29,463
 11,806
 7,022
 48,291
 50,717
 —
 50,717
Receipts on real estate loans receivable:              
Loan payoffs 58,557
 —
 —
 58,557
 97,039
 60,500
 157,539
Principal payments on loans 32,870
 —
 —
 32,870
 798
 —
 798
Sub-total 91,427
 —
 —
 91,427
 97,837
 60,500
 158,337
Less: Non-cash activity(1)
 —
 —
 —
 —
 (61,337) (60,500) (121,837)
Net cash receipts on real estate loans 91,427
 —
 —
 91,427
 36,500
 —
 36,500
Net cash advances (receipts) on real estate loans $(61,964) $11,806
 $7,022
 $(43,136) $14,217
 $—
 $14,217
(1) Triple-net represents acquisitions of assets previously financed as real estate loans. Please see Note 3 for additional information. Outpatient medical represents a deed in lieu of foreclosure on a previously financed first mortgage property.
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In 2016, we restructured real estate loans with Genesis HealthCare and recorded a loan loss charge in the amount of $6,935,000 on one of the loans as the present value of expected future cash flows was less than the carrying value of the loan.  In 2017, we recorded an additional loan loss charge of $62,966,000 relating to real estate loans with Genesis HealthCare based on an estimation of expected future cash flows discounted at the effective interest rate of the loans. AtIn March 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for certain Triple-net real estate loans receivable that were no longer deemed collectible. During the quarter ended June 30, 2018,2019, these loans were written off. As of June 30, 2019, the allowance for loan losses totalsloss balance of $68,372,000 and is deemed to be sufficient to absorb expected losses related to these loans.losses. At June 30, 2018,2019, we had noone real estate loansloan with an outstanding balancesbalance of $2,534,000 on non-accrual status and recorded no provision for loan losses during the six months ended June 30, 2018.status.
The following is a summary of our impaired loans (in thousands):
  Six Months Ended
  June 30, 2019 June 30, 2018
Balance of impaired loans at end of period $188,068
 $214,871
Allowance for loan losses 68,372
 68,372
Balance of impaired loans not reserved $119,696
 $146,499
Average impaired loans for the period $197,426
 $252,172
Interest recognized on impaired loans(1)
 7,964
 8,847
  Six Months Ended
  June 30, 2018 June 30, 2017
Balance of impaired loans at end of period $214,871
 $289,473
Allowance for loan losses 68,372
 5,811
Balance of impaired loans not reserved $146,499
 $283,662
Average impaired loans for the period $252,172
 $327,324
Interest recognized on impaired loans(1)
 8,847
 16,464
(1) Represents cash interest recognized in the period since loans were identified as impaired.


7.8. Investments in Unconsolidated Entities
We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. The results of operations for these entities have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities. The following is a summary of our investments in unconsolidated entities (dollars in thousands): 

  
Percentage Ownership(1)
 June 30, 2018 December 31, 2017
Triple-net 10% to 49% $22,002
 $22,856
Seniors housing operating 10% to 50% 339,737
 352,430
Outpatient medical 43% 88,288
 70,299
Total   $450,027
 $445,585
14
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


  
Percentage Ownership(1)
 June 30, 2019 December 31, 2018
Seniors Housing Operating 10% to 50% $379,886
 $344,982
Triple-net 10% to 49% 9,459
 34,284
Outpatient Medical 43% to 50% 130,042
 103,648
Total   $519,387
 $482,914
(1) Excludes ownership of in-substance real estate investments.estate.


At June 30, 2018,2019, the aggregate unamortized basis difference of our joint venture investments of $107,508,000$101,571,000 is primarily attributable to the difference between the amount for which we purchase 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.
8.9. Credit Concentration
We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 1718 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the six months ended June 30, 2018,2019, excluding our share of NOI in unconsolidated entities (dollars in thousands):
 Number of Total Percent of Number of Total Percent of
Concentration by relationship:(1)
 Properties NOI 
NOI(2)
 Properties NOI 
NOI(2)
Sunrise Senior Living(3)
 161
 $165,935
 15% 165
 $174,422
 14%
Brookdale Senior Living 137
 83,467
 8%
ProMedica 218
 107,541
 9%
Revera(3)
 98
 78,233
 7% 98
 72,928
 6%
Genesis HealthCare 86
 67,546
 6% 60
 60,984
 5%
Benchmark Senior Living (4) 48
 49,941
 5% 48
 55,530
 5%
Remaining portfolio  727
 652,539
 59% 1,009
 749,012
 61%
Totals
 1,257
 $1,097,661
 100% 1,598
 $1,220,417
 100%
(1) Genesis Healthcare isand ProMedica are in our triple-netTriple-net segment. Sunrise Senior Living and Revera are in our seniors housing operatingSeniors Housing Operating segment. Benchmark Senior Living and Brookdale Senior Living areis in both our triple-netTriple-net and seniors housing operatingSeniors Housing Operating segments.
(2) NOI with our top five relationships comprised 41%38% of total NOI for the year ended December 31, 2017.2018.
(3) Revera owns a controlling interest in Sunrise Senior Living.
WELLTOWER INC.(4) Please see Note 21 for additional information.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



9.10. Borrowings Under Credit Facilities and Related ItemsCommercial Paper Program 
At June 30, 2018,2019, we had a primary unsecured credit facility with a consortium of 2931 banks that includes a $3,000,000,000 unsecured revolving credit facility ($935,000,000 outstanding at June 30, 2019), a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. 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, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (none outstanding at June 30, 2018)2019). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (2.99%(3.22% at June 30, 2018)2019). The applicable margin is based on our debt ratings and was 0.90%0.825% at June 30, 2018.2019. 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 June 30, 2018.2019. The term credit facilities mature on May 13, 2021.July 19, 2023. The revolving credit facility is scheduled to mature on May 13, 2020July 19, 2022 and can be extended for two successive terms of six months each at our option.
The following information relatesIn January 2019, we established an unsecured commercial paper program (the "Commercial Paper Program"). Under the terms of the 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 borrowings under the primary unsecured revolving credit facility for the periods presented (dollars in thousands): 
  Three Months Ended June 30, Six Months Ended June 30,
  2018 2017 2018 2017
Balance outstanding at quarter end(1)
 $540,000
 $385,000
 $540,000
 $385,000
Maximum amount outstanding at any month end $685,000
 $640,000
 $865,000
 $1,010,000
Average amount outstanding (total of daily        
principal balances divided by days in period) $562,747
 $561,626
 $463,978
 $678,343
Weighted average interest rate (actual interest        
expense divided by average borrowings outstanding) 3.04% 1.94% 2.91% 1.87%
(1) face or principal amount outstanding at any time of $1,000,000,000. As of June 30, 2018, letters2019, there was a balance of credit$934,188,000 outstanding on the Commercial Paper Program ($935,000,000 in the aggregate amountprincipal outstanding net of $22,365,000 have been issued,an unamortized discount of $812,000), which reduces the borrowing capacity on the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 2.70% as of June 30, 2019 and a weighted average maturity of 31 days as of June 30, 2019.

The following information relates to aggregate borrowings under the unsecured revolving credit facility and Commercial Paper Program for the periods presented (dollars in thousands): 


15
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Balance outstanding at quarter end $1,870,000
 $540,000
 $1,870,000
 $540,000
Maximum amount outstanding at any month end $2,880,000
 $685,000
 $2,880,000
 $865,000
Average amount outstanding (total of daily        
principal balances divided by days in period) $1,807,631
 $562,747
 $1,301,883
 $463,978
Weighted average interest rate (actual interest        
expense divided by average borrowings outstanding) 3.08% 3.04% 3.11% 2.91%
10.11. 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 (1) 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 (2) 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 June 30, 2018,2019, the annual principal payments due on these debt obligations were as follows (in thousands):
 
Senior
Unsecured Notes(1,2)
 
Secured
Debt (1,3)
 Totals 
Senior
Unsecured Notes(1,2)
 
Secured
Debt (1,3)
 Totals
2018 $—
 $197,438
 $197,438
2019 600,000
 476,109
 1,076,109
 $—
 $312,291
 $312,291
2020(4)
 685,810
 138,533
 824,343
 1,236,665
 144,518
 1,381,183
2021(5,6)
 1,140,259
 340,621
 1,480,880
2021 450,000
 383,425
 833,425
2022 600,000
 224,330
 824,330
 600,000
 352,410
 952,410
2023(5,6)
 1,790,971
 330,498
 2,121,469
Thereafter(7,8)
 5,435,685
 1,085,047
 6,520,732
 6,633,920
 1,166,840
 7,800,760
Totals $8,461,754
 $2,462,078
 $10,923,832
 $10,711,556
 $2,689,982
 $13,401,538
(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 balance sheet.Consolidated Balance Sheet.
(2) Annual interest rates range from 2.6%2.86% to 6.5%6.50%.
(3) Annual interest rates range from 1.69% to 7.93%12.00%. Carrying value of the properties securing the debt totaled $5,220,301,000$5,991,142,000 at June 30, 2018.2019.
(4) In November 2015, one of our wholly-owned subsidiaries issued and we guaranteedIncludes a $300,000,000 of Canadian-denominated 3.35% senior unsecured notes due 2020 (approximately $228,310,000$229,165,000 based on the Canadian/U.S. Dollar exchange rate on June 30, 2018).2019) and a $1,000,000,000 unsecured term loan facility that matures on May 28, 2020 which was put in place to bridge the acquisition of the CNL Healthcare Properties portfolio. The unsecured term loan facility was subsequently extinguished in July 2019 with proceeds from the disposition of the Benchmark Senior Living portfolio.
(5) On May 13, 2016, we refinanced the funding onIncludes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $190,259,000$190,971,000 based on the Canadian/U.S. Dollar exchange rate on June 30, 2018)2019). The loan matures on May 13, 2021July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 95 basis points (2.59%0.9% (2.86% at June 30, 2018)2019).
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(6) On May 13, 2016, we refinanced the funding onIncludes a $500,000,000 unsecured term credit facility. The loan matures on May 13, 2021July 19, 2023 and bears interest at LIBOR plus 95 basis points (3.0%0.9% (3.29% at June 30, 2018)2019).
(7) On November 20, 2013, we completed the sale ofIncludes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $725,835,000$698,720,000 based on the Sterling/U.S. Dollar exchange rate in effect on June 30, 2018) of 4.8%2019).
(8) Includes a £500,000,000 4.50% senior unsecured notes due 2028.
(8) On November 25, 2014, we completed the sale of £500,000,0002034 (approximately $659,850,000$635,200,000 based on the Sterling/U.S. Dollar exchange rate in effect on June 30, 2018) of 4.5% senior unsecured notes due 2034.2019).
The following is a summary of our senior unsecured notes principal activity during the periods presented (dollars in thousands):
 Six Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018
   Weighted Avg.   Weighted Avg.   Weighted Avg.   Weighted Avg.
 Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $8,417,447
 4.306% $8,260,038
 4.245% $9,699,984
 4.48% $8,417,447
 4.31%
Debt issued 550,000
 4.250% —
 0.000% 2,050,000
 3.58% 550,000
 4.25%
Debt extinguished (450,000) 2.250% —
 0.000% (1,050,000) 4.98% (450,000) 2.25%
Foreign currency (55,693) 4.022% 83,101
 4.320% 11,572
 3.52% (55,693) 4.02%
Ending balance $8,461,754
 4.456% $8,343,139
 4.276% $10,711,556
 4.24% $8,461,754
 4.46%



16
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):
 Six Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018
   Weighted Avg.   Weighted Avg.   Weighted Avg.   Weighted Avg.
 Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $2,618,408
 3.761% $3,465,066
 4.094% $2,485,711
 3.90% $2,618,408
 3.76%
Debt issued 44,606
 3.384% 161,799
 2.331% 295,969
 3.52% 44,606
 3.38%
Debt assumed 85,192
 4.395% 23,094
 6.670% 42,000
 4.62% 85,192
 4.40%
Debt extinguished (151,473) 4.42% (196,573) 5.66%
Principal payments (28,385) 3.912% (32,206) 4.378% (27,227) 3.74% (28,385) 3.91%
Debt extinguished (196,573) 5.658% (987,923) 5.370%
Foreign currency (61,170) 3.325% 44,859
 3.116% 45,002
 3.37% (61,170) 3.33%
Ending balance $2,462,078
 3.755% $2,674,689
 3.669% $2,689,982
 3.84% $2,462,078
 3.76%
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 June 30, 2018,2019, we were in compliance with all of the covenants under our debt agreements.
11.12. 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.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 derivative financial instrumentsforeign currency forward contracts, cross currency swap contacts, 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 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 were used to hedge the variable cash flows associated with variable-rate debt.

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 income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to the consolidated statements of income.

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. 
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In the second quarter of 2018, we redesignated these derivative financial instruments that qualify as hedges of net investments in foreign operations using the spot method in order to more closely align the underlying economics of the hedged transactions. The changes in fair values and the excluded components of derivative instruments designated as net investment hedges are recognized as a cumulative translation adjustment component of OCI. The cross currency basis spread is recognized in interest expense on the Consolidated Statement of Comprehensive Income using the swap accrual process. Prior to the adoption of ASU 2017-12, all settlements and changes in fair values of these derivative instruments were recognized as a cumulative transaction adjustment component of OCI and there had been no ineffectiveness on these hedging relationships.
During the six months ended June 30, 20182019 and 2017,2018, we settled certain net investment hedges generating cash proceeds of $6,716,000 and necessitating cash payments of $27,774,000, and generating cash proceeds of $19,665,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.


17
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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 statementConsolidated Statements of comprehensive income,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.
The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands): 
 June 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
Derivatives designated as net investment hedges:        
Denominated in Canadian Dollars $575,000
 $575,000
 $500,000
 $575,000
Denominated in Pounds Sterling £891,640
 £550,000
 £1,340,708
 £890,708
        
Financial instruments designated as net investment hedges:        
Denominated in Canadian Dollars $250,000
 $250,000
 $250,000
 $250,000
Denominated in Pounds Sterling £1,050,000
 £1,050,000
 £1,050,000
 £1,050,000
        
Derivatives designated as cash flow hedges:    
Denominated in Canadian Dollars $—
 $36,000
Interest rate swaps designated as cash flow hedges:    
Denominated in U.S Dollars (1)
 $1,188,250
 $—
        
Derivative instruments not designated:        
Denominated in U.S. Dollars $408,007
 $408,007
Interest rate caps denominated in U.S. Dollars $405,819
 $405,819
Forward purchase contracts denominated in Canadian Dollars $(500,000) $—
 $(217,500) $(325,000)
Forward sales contracts denominated in Canadian Dollars $580,000
 $80,000
 $280,000
 $405,000
Forward purchase contracts denominated in Pounds Sterling £(350,000) £—
 £(125,000) £(350,000)
Forward sales contracts denominated in Pounds Sterling £350,000
 £—
 £125,000
 £350,000

(1) At June 30, 2019 the maximum maturity date was July 15, 2021.
The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):
 Three Months Ended June 30, Six Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30,
 Location 2018 2017 2018 2017 Location 2019 2018 2019 2018
Gain (loss) on derivative instruments designated as hedges recognized in income Interest expense $4,091
 $1,732
 $3,822

$4,189
 Interest expense $7,134
 $4,091
 $12,467
 $3,822
                
Gain (loss) on derivative instruments not designated as hedges recognized in income Interest expense $734
 $(703) $2,453

$(935) Interest expense $(1,128) $734
 $(2,666) $2,453
                
Gain (loss) on foreign exchange contracts and term loans designated as net investment hedge recognized in OCI OCI $150,703
 $(97,539) $88,005

$(141,880) OCI $100,407
 $150,703
 $12,725
 $88,005
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12.13. Commitments and Contingencies
At June 30, 2018,2019, we had 14 outstanding letter of credit obligations totaling $72,966,000$48,111,000 and expiring between 20182019 and 2024. At June 30, 2018,2019, we had outstanding construction in progress of $200,569,000$363,160,000 and were committed to providing additional funds of approximately $369,576,000$483,210,000 to complete construction. At June 30, 2018, we hadPurchase obligations include contingent purchase obligations totaling $9,317,000.$8,476,000. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. Rents due from the tenant are increased to reflect the additional investment in the property.
We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840 “Leases.”  A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90% of the fair value of the leased asset. Certain leases contain bargain purchase options and have been classified as capital leases.  At June 30, 2018, we had operating lease obligations of $1,115,108,000 relating to certain ground leases and company office space and capital lease obligations of $86,352,000 relating primarily to certain investment properties. Regarding ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations.  At June 30, 2018, aggregate future minimum rentals to be received under these noncancelable subleases totaled $75,100,000.
18
13.
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:
 June 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
Preferred Stock:        
Authorized shares 50,000,000
 50,000,000
 50,000,000
 50,000,000
Issued shares 14,375,000
 14,375,000
 —
 14,375,000
Outstanding shares 14,369,965
 14,370,060
 —
 14,369,965
        
Common Stock, $1.00 par value:        
Authorized shares 700,000,000
 700,000,000
 700,000,000
 700,000,000
Issued shares 373,211,708
 372,852,311
 406,497,122
 384,849,236
Outstanding shares 372,029,607
 371,731,551
 405,254,113
 383,674,603
Preferred Stock.Stock The following is a summary of our preferred stock activity during the periods indicated:
 Six Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018
   Weighted Avg.   Weighted Avg.   Weighted Avg.   Weighted Avg.
 Shares Dividend Rate Shares Dividend Rate Shares Dividend Rate Shares Dividend Rate
Beginning balance 14,370,060
 6.500% 25,875,000
 6.500% 14,369,965
 6.50% 14,370,060
 6.50%
Shares redeemed —
 0.000% (11,500,000) 6.500%
Shares converted (95) 6.500% —
 0.000% (14,369,965) 6.50% (95) 6.50%
Ending balance 14,369,965
 6.500% 14,375,000
 6.500% —
 —% 14,369,965
 6.50%
During the six months ended June 30, 2017,2019, we recognized a charge of $9,769,000 in connection with the redemptionconverted all of the outstanding Series J preferredI Preferred Stock. Each share was converted into 0.8857 shares of common stock.
Common Stock.Stock In February 2019, we entered into separate amended and restated equity distribution agreements whereby we can offer and sell up to $1,500,000,000 aggregate amount of our common stock ("Equity Shelf Program"). The Equity Shelf Program also allows us to enter into forward sale agreements. As of June 30, 2019, we had $1,360,820,000 of remaining capacity under the Equity Shelf Program, which excludes forward sales agreements outstanding for the sale of 2,194,575 shares with maturity dates in the fourth quarter. We expect to physically settle the forward sales for cash proceeds.
The following is a summary of our common stock issuances during the six months ended June 30, 20182019 and 20172018 (dollars in thousands, except average price amounts): 
WELLTOWER INC.
  Shares Issued Average Price Gross Proceeds Net Proceeds
2018 Dividend reinvestment plan issuances 182,910
 $55.40 $10,133
 $10,133
2018 Option exercises 1,026
 53.61 55
 55
2018 Preferred stock conversions 83
   —
 —
2018 Stock incentive plans, net of forfeitures 114,037
   —
 —
2018 Totals 298,056
   $10,188
 $10,188
         
2019 Dividend reinvestment plan issuances 4,304,712
 $75.20 $323,724
 $320,243
2019 Option exercises 10,736
 51.32 551
 551
2019 Equity Shelf Program issuances 4,384,045
 74.97 328,665
 326,362
2019 Preferred stock conversions 12,712,452
   —
 —
2019 Stock incentive plans, net of forfeitures 167,565
   —
 —
2019 Totals 21,579,510
   $652,940
 $647,156
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  Shares Issued Average Price Gross Proceeds Net Proceeds
2017 Dividend reinvestment plan issuances 2,836,216
 $70.55 $200,097
 $199,757
2017 Option exercises 202,190
 50.88 10,288
 10,288
2017 Equity shelf program issuances 2,986,574
 72.30 215,917
 214,406
2017 Redemption of equity membership units 91,180
   —
 —
2017 Stock incentive plans, net of forfeitures 159,709
   —
 —
2017 Totals 6,275,869
   $426,302
 $424,451
         
2018 Dividend reinvestment plan issuances 182,910
 $55.40 $10,133
 $10,133
2018 Option exercises 1,026
 53.61 55
 55
2018 Preferred stock conversions 83
   —
 —
2018 Stock incentive plans, net of forfeitures 114,037
   —
 —
2018 Totals 298,056
   $10,188
 $10,188
Dividends.  The increase in dividends is primarily attributable to increases in our common shares outstanding, offset by the conversion of the Series I Preferred Stock as described above.  The following is a summary of our dividend payments (in thousands, except per share amounts): 

  Six Months Ended
  June 30, 2018 June 30, 2017
   Per Share Amount Per Share Amount
Common Stock $1.7400
 $647,098
 $1.7400
 $634,296
Series I Preferred Stock 1.6250
 23,352
 1.6250
 23,360
Series J Preferred Stock —
 —
 0.2347
 2,699
Totals   $670,450
   $660,355
19
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  Six Months Ended
  June 30, 2019 June 30, 2018
   Per Share Amount Per Share Amount
Common Stock $1.7400
 $698,437
 $1.7400
 $647,098
Series I Preferred Stock —
 —
 1.6250
 23,352
Totals   $698,437
   $670,450
Accumulated Other Comprehensive Income.  The following is a summary of accumulated other comprehensive income (loss) for the periods presented (in thousands):
 June 30, 2019 December 31, 2018
Foreign currency translation$(851,584) $(868,006)
Derivative instruments751,502
 738,777
Actuarial losses(540) (540)
Total accumulated other comprehensive loss$(100,622) $(129,769)

  Unrecognized gains (losses) related to:  
  Foreign Currency Translation Available for Sale Securities Actuarial Losses Cash Flow Hedges Total
Balance at December 31, 2017 $(110,581) $—
 $(884) $—
 $(111,465)
Other comprehensive income before reclassification adjustments (21,166) —
 —
 —
 (21,166)
Net current-period other comprehensive income (21,166) —
 —
 —
 (21,166)
Balance at June 30, 2018 $(131,747) $—
 $(884) $—
 $(132,631)
           
Balance at December 31, 2016 $(173,496) $5,120
 $(1,153) $(2) $(169,531)
Other comprehensive income before reclassification adjustments 22,384
 (16,477) —
 —
 5,907
Net current-period other comprehensive income 22,384
 (16,477) —
 —
 5,907
Balance at June 30, 2017 $(151,112) $(11,357) $(1,153) $(2) $(163,624)
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


14.15. Stock Incentive Plans
Our 2016 Long-Term Incentive Plan (“2016 Plan”) 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. Our non-employee directors, officers and key employees are eligible to participate in the 2016 Plan. The 2016 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 five years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $5,167,000$7,662,000 and $16,725,000$15,192,000 for the three and six months ended June 30, 2018, respectively,2019, respectfully, and $4,763,000$5,167,000 and $9,669,000$16,725,000 for the same periods in 2017.2018.
15.16. 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 Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Numerator for basic and diluted earnings        
per share - net income (loss) attributable        
to common stockholders $137,762
 $154,432
 $418,232
 $592,103
         
Denominator for basic earnings per        
share - weighted average shares 404,607
 371,640
 398,073
 371,552
Effect of dilutive securities:     
  
Employee stock options —
 14
 1
 15
Non-vested restricted shares 955
 325
 911
 523
Redeemable shares 1,096
 1,096
 1,096
 1,096
Employee stock purchase program 15
 —
 15
 —
Dilutive potential common shares 2,066
 1,435
 2,023
 1,634
Denominator for diluted earnings per        
share - adjusted weighted average shares 406,673
 373,075
 400,096
 373,186
         
Basic earnings per share $0.34
 $0.42
 $1.05
 $1.59
Diluted earnings per share $0.34
 $0.41
 $1.05
 $1.59

  Three Months Ended June 30, Six Months Ended June 30,
  2018 2017 2018 2017
Numerator for basic and diluted earnings        
per share - net income (loss) attributable        
to common stockholders $154,432
 $188,429
 $592,103
 $501,068
         
Denominator for basic earnings per        
share - weighted average shares 371,640
 366,524
 371,552
 364,551
Effect of dilutive securities:        
Employee stock options 14
 50
 15
 60
Non-vested restricted shares 325
 479
 523
 438
Redeemable shares 1,096
 1,096
 1,096
 1,374
Dilutive potential common shares 1,435
 1,625
 1,634
 1,872
Denominator for diluted earnings per        
share - adjusted weighted average shares 373,075
 368,149
 373,186
 366,423
         
Basic earnings per share $0.42
 $0.51
 $1.59
 $1.37
Diluted earnings per share $0.41
 $0.51
 $1.59
 $1.37
The Series I Cumulative Convertible Perpetual Preferred Stock waswere excluded from the 2018 calculation as the effect of the conversions were anti-dilutive. As of June 30, 2019, forward sales agreements outstanding for the sale of 2,194,575 shares of common stock were not included in the calculations ascomputation of diluted earnings per share because such forward sales were anti-dilutive for the effect of conversions into common stock was anti-dilutive.period.
16.17. Disclosure about Fair Value of Financial Instruments 

20
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. The guidance defines fair value 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. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20172018 for additional information. The guidance describes three levels of inputs that may be used to measure fair value: 
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 and Other Real Estate Loans Receivable — The fair value of mortgage loans and other 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. 


20
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. 
Borrowings Under Primary Unsecured Revolving Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured revolving 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 value.  Fair market value is determined using Level 2 inputs by estimating the future value of the currency pair based on existingdata, including yield curves and foreign exchange rates comprised(all of current spot and traded forward points, and calculating a present value of the net amount using a discount factor based on observable traded interest rates. our derivatives are Level 2).
Redeemable OP Unitholder Interests — Our redeemable unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs. 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):

21
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  June 30, 2018 December 31, 2017
  Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets:        
Mortgage loans receivable $274,226
 $282,406
 $306,120
 $332,508
Other real estate loans receivable 106,869
 110,486
 121,379
 125,480
Equity securities 21,903
 21,903
 7,269
 7,269
Cash and cash equivalents 215,120 215,120 243,777
 243,777
Restricted cash 57,263 57,263
 65,526
 65,526
Foreign currency forward contracts and cross currency swaps 104,729
 104,729
 15,604
 15,604
         
Financial liabilities:        
Borrowings under unsecured credit facilities $540,000
 $540,000
 $719,000
 $719,000
Senior unsecured notes 8,373,774 8,904,455
 8,331,722
 9,168,432
Secured debt 2,450,483 2,468,073
 2,608,976
 2,641,997
Foreign currency forward contracts and cross currency swaps 53,876
 53,876
 38,654
 38,654
         
Redeemable OP unitholder interests $97,476
 $97,476
 $97,476
 $97,476

  June 30, 2019 December 31, 2018
  Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets:        
Mortgage loans receivable $264,398
 $274,116
 $249,071
 $257,337
Other real estate loans receivable 104,596
 105,706
 81,268
 82,742
Equity securities 11,860
 11,860
 11,286
 11,286
Cash and cash equivalents 268,666
 268,666
 215,376
 215,376
Restricted cash 91,052
 91,052
 100,753
 100,753
Foreign currency forward contracts, interest rate swaps and cross currency swaps 91,290
 91,290
 94,729
 94,729
         
Financial liabilities:        
Unsecured revolving credit facility and commercial paper note program $1,869,188
 $1,869,188
 $1,147,000
 $1,147,000
Senior unsecured notes 10,606,106
 11,026,259
 9,603,299
 10,043,797
Secured debt 2,675,507
 2,737,838
 2,476,177
 2,499,130
Foreign currency forward contracts, interest rate swaps and cross currency swaps 32,249
 32,249
 71,109
 71,109
         
Redeemable OP unitholder interests $121,476
 $121,476
 $103,071
 $103,071

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):
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  Fair Value Measurements as of June 30, 2019
  Total Level 1 Level 2 Level 3
Equity securities $11,860
 $11,860
 $—
 $—
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability)(1)
 59,041
 —
 59,041
 —
Redeemable OP unitholder interests 121,476
 —
 121,476
 —
Totals  $192,377
 $11,860
 $180,517
 $—
  Fair Value Measurements as of June 30, 2018
  Total Level 1 Level 2 Level 3
Equity securities $21,903
 $21,903
 $—
 $—
Foreign currency forward contracts and cross currency swaps, net asset (liability)(1)
 50,853
 —
 50,853
 —
Redeemable OP unitholder interests 97,476
 —
 97,476
 —
Totals  $170,232
 $21,903
 $148,329
 $—
(1) Please see Note 1112 for additional information.
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. As these assets and liabilities are not measured at fair value on a recurring basis, they 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/assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 67 for impairments of real estate 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 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 business combinations and asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.
17.18. Segment Reporting
 We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: triple-net,Seniors Housing Operating, Triple-net and Outpatient Medical. Our seniors housing operating and outpatient medical.  Our triple-net properties include long-term/post-acute care facilities, assisted living, facilities, independent living/continuing care retirement communities, care homes (United Kingdom), independent supportive living facilities communities

22
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Canada), care homes with and without nursing (United Kingdom)(U.K.) and combinations thereof.thereof that are owned and/or operated through RIDEA structures (see Note 19). Under the triple-netTriple-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 seniors housing operating properties include the seniors housing communities referenced above that are owned and/or operated through RIDEA structures (see Note 18). Our outpatient medical properties are typically leased to multiple tenants and generally require a certain level of property management.management by us.
We evaluate performance based upon consolidated net operating income (“NOI”)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 estate investments and 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, 2017)2018). 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. There are no intersegment sales or transfers.

23
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Summary information for the reportable segments (which excludes unconsolidated entities) is as follows (in thousands): 
WELLTOWER INC.
  NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended June 30, 2019:
Seniors Housing Operating
Triple-net Outpatient Medical
Non-segment / Corporate
Total
Resident fees and services
$914,085

$—
 $—

$—

$914,085
Rental income
—

222,362
 163,224

—

385,586
Interest income
—

17,118
 238

—

17,356
Other income
1,444

1,278
 (97)
454

3,079
Total revenues
915,529
 240,758
 163,365
 454

1,320,106
          

Property operating expenses
637,317

12,823
 50,987

—

701,127
Consolidated net operating income
278,212
 227,935
 112,378
 454

618,979
          

Depreciation and amortization
136,551

56,056
 55,445

—

248,052
Interest expense
17,572

3,225
 3,386

117,153

141,336
General and administrative expenses
—

—
 —

33,741

33,741
Loss (gain) on derivatives and financial instruments, net
—

1,913
 —

—

1,913
Impairment of assets
—

(940) 10,879

—

9,939
Other expenses
11,857

5,560
 (4)
4,215

21,628
Income (loss) from continuing operations before income taxes and other items
112,232
 162,121
 42,672
 (154,655)
162,370
Income tax (expense) benefit
375

(1,361) (586)
(27)
(1,599)
(Loss) income from unconsolidated entities
(17,453)
6,578
 1,826

—

(9,049)
Gain (loss) on real estate dispositions, net
(550)
(1,130) (2)
—

(1,682)
Income (loss) from continuing operations
94,604
 166,208
 43,910
 (154,682)
150,040
Net income (loss)
$94,604
 $166,208
 $43,910
 $(154,682)
$150,040
          

Total assets
$16,440,104

$9,494,388
 $7,004,561

$209,644

$33,148,697
Three Months Ended June 30, 2018: Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total
Resident fees and services $763,345
 $—
 $—
 $—
 $763,345
Rental income —
 197,961
 135,640
 —
 333,601
Interest income 172
 13,247
 43
 —
 13,462
Other income 1,650
 13,212
 144
 498
 15,504
Total revenues 765,167
 224,420
 135,827
 498
 1,125,912
          

Property operating expenses 525,662
 136
 42,953
 —
 568,751
Consolidated net operating income 239,505
 224,284
 92,874
 498
 557,161
          

Depreciation and amortization 134,779
 55,309
 46,187
 —
 236,275
Interest expense 16,971
 3,800
 1,656
 98,989
 121,416
General and administrative expenses —
 —
 —
 32,831
 32,831
Loss (gain) on derivatives and financial instruments, net —
 (7,460) —
 —
 (7,460)
Loss (gain) on extinguishment of debt, net 299
 —
 —
 —
 299
Impairment of assets 2,212
 2,420
 —
 —
 4,632
Other expenses 6,167
 957

2,095
 839
 10,058
Income (loss) from continuing operations before income taxes and other items 79,077
 169,258
 42,936
 (132,161) 159,110
Income tax (expense) benefit (2,617) (688) (378) (158) (3,841)
(Loss) income from unconsolidated entities (5,204) 5,062
 1,391
 —
 1,249
Gain (loss) on real estate dispositions, net (1) 10,759
 (3) —
 10,755
Income (loss) from continuing operations 71,255
 184,391
 43,946
 (132,319) 167,273
Net income (loss) $71,255
 $184,391
 $43,946
 $(132,319) $167,273
           


24
Three Months Ended June 30, 2018:
Triple-net
Seniors Housing Operating
Outpatient Medical
Non-segment / Corporate
Total
Rental income
$197,961

$—

$135,640

$—

$333,601
Resident fees and services
—

763,345

—

—

763,345
Interest income
13,247

172

43

—

13,462
Other income(1)

13,212

1,650

144

498

15,504
Total revenues
224,420
 765,167
 135,827
 498

1,125,912
Property operating expenses
136

525,662

42,953

—

568,751
Consolidated net operating income
224,284
 239,505
 92,874
 498

557,161
Interest expense
3,800

16,971

1,656

98,989

121,416
Loss (gain) on derivatives and financial instruments, net
(7,460)
—

—

—

(7,460)
Depreciation and amortization
55,309

134,779

46,187

—

236,275
General and administrative
—

—

—

32,831

32,831
Loss (gain) on extinguishment of debt, net
—

299

—

—

299
Impairment of assets
2,420

2,212

—

—

4,632
Other expenses
957

6,167

2,095

839

10,058
Income (loss) from continuing operations before income taxes and income from unconsolidated entities
169,258
 79,077
 42,936
 (132,161)
159,110
Income tax (expense) benefit
(688)
(2,617)
(378)
(158)
(3,841)
Income (loss) from unconsolidated entities
5,062

(5,204)
1,391

—

1,249
Income (loss) from continuing operations
173,632
 71,256
 43,949
 (132,319)
156,518
Gain (loss) on real estate dispositions, net
10,759

(1)
(3)
—

10,755
Net income (loss)
$184,391
 $71,255
 $43,946
 $(132,319)
$167,273
Total assets
$8,735,524

$13,785,165

$4,886,011

$212,282

$27,618,982
           
(1) Includes $10,805,000 of lease termination fee income recognized in the triple-net segment.
Three Months Ended June 30, 2017: Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total
Rental income $217,889
 $—
 $137,710
 $—
 $355,599
Resident fees and services —
 677,040
 —
 —
 677,040
Interest income 20,901
 —
 —
 —
 20,901
Other income 2,557
 1,049
 1,217
 239
 5,062
Total revenues 241,347
 678,089
 138,927
 239
 1,058,602
Property operating expenses —
 459,111
 42,744
 —
 501,855
Consolidated net operating income 241,347
 218,978
 96,183
 239
 556,747
Interest expense 2,515
 15,403
 2,122
 96,191
 116,231
Loss (gain) on derivatives and financial instruments, net 736
 —
 —
 —
 736
Depreciation and amortization 60,171
 117,198
 47,478
 —
 224,847
General and administrative —
 —
 —
 32,632
 32,632
Loss (gain) on extinguishment of debt, net —
 2,524
 2,991
 —
 5,515
Impairment of assets 4,846
 8,785
 —
 —
 13,631
Other expenses 2,181
 1,165
 1,310
 1,683
 6,339
Income (loss) from continuing operations before income taxes and income from unconsolidated entities 170,898
 73,903
 42,282
 (130,267) 156,816
Income tax (expense) benefit (1,471) 10,247
 (351) 23
 8,448
Income (loss) from unconsolidated entities 3,867
 (8,449) 604
 —
 (3,978)
Income (loss) from continuing operations 173,294
 75,701
 42,535
 (130,244) 161,286
Gain (loss) on real estate dispositions, net 42,155
 —
 —
 —
 42,155
Net income (loss) $215,449
 $75,701
 $42,535
 $(130,244) $203,441
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Six Months Ended June 30, 2018 Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total
Six Months Ended June 30, 2019 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total
Resident fees and services $1,782,370
 $—
 $—
 $—
 $1,782,370
Rental income $404,792
 $—
 $272,178
 $—
 $676,970
 —
 454,394
 312,276
 —
 766,670
Resident fees and services —
 1,499,279
 —
 —
 1,499,279
Interest income 27,798
 257
 55
 —
 28,110
 —
 32,064
 411
 —
 32,475
Other income 14,589
 2,798
 265
 866
 18,518
 5,545
 2,541
 139
 2,611
 10,836
Total revenues 447,179
 1,502,334
 272,498
 866
 2,222,877
 1,787,915
 488,999
 312,826
 2,611
 2,592,351
         
Property operating expenses 157
 1,037,603
 87,456
 —
 1,125,216
 1,245,003
 27,778
 99,153
 —
 1,371,934
Consolidated net operating income 447,022
 464,731
 185,042
 866
 1,097,661
 542,912
 461,221
 213,673
 2,611
 1,220,417
         
Depreciation and amortization 268,126
 117,404
 106,454
 —
 491,984
Interest expense 7,242
 33,906
 3,332
 199,711
 244,191
 35,823
 6,665
 6,734
 237,346
 286,568
General and administrative expenses —
 —
 —
 69,023
 69,023
Loss (gain) on derivatives and financial instruments, net (14,633) —
 —
 —
 (14,633) —
 (574) —
 —
 (574)
Depreciation and amortization 111,341
 260,548
 92,587
 —
 464,476
General and administrative —
 —
 —
 66,536
 66,536
Loss (gain) on extinguishment of debt, net (32) 110
 11,928
 —
 12,006
 —
 —
 —
 15,719
 15,719
Provision for loan losses —
 18,690
 —
 —
 18,690
Impairment of assets 28,304
 4,513
 —
 —
 32,817
 —
 (940) 10,879
 —
 9,939
Other expenses 2,077
 5,979
 2,693
 3,021
 13,770
 14,803
 8,589
 750
 6,242
 30,384
Income (loss) from continuing operations before income taxes and income from unconsolidated entities 312,723
 159,675
 74,502
 (268,402) 278,498
Income (loss) from continuing operations before income taxes and other items 224,160
 311,387
 88,856
 (325,719) 298,684
Income tax (expense) benefit (1,824) (2,455) (806) (344) (5,429) (244) (2,312) (951) (314) (3,821)
Income (loss) from unconsolidated entities 10,883
 (14,684) 2,621
 —
 (1,180)
(Loss) income from unconsolidated entities (34,033) 12,236
 3,549
 —
 (18,248)
Gain (loss) on real estate dispositions, net (710) 166,444
 (7) —
 165,727
Income (loss) from continuing operations 321,782
 142,536
 76,317
 (268,746) 271,889
 189,173
 487,755
 91,447
 (326,033) 442,342
Gain (loss) on real estate dispositions, net 134,156
 4
 214,779
 —
 348,939
Net income (loss) $455,938
 $142,540
 $291,096
 $(268,746) $620,828
 $189,173
 $487,755
 $91,447
 $(326,033) $442,342


Six Months Ended June 30, 2018 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total
Resident fees and services $1,499,279
 $—
 $—
 $—
 $1,499,279
Rental income —
 404,792
 272,178
 —
 676,970
Interest income 257
 27,798
 55
 —
 28,110
Other income 2,798
 14,589
 265
 866
 18,518
Total revenues 1,502,334
 447,179
 272,498
 866
 2,222,877
           
Property operating expenses 1,037,603
 157
 87,456
 —
 1,125,216
Consolidated net operating income 464,731
 447,022
 185,042
 866
 1,097,661
           
Depreciation and amortization 260,548
 111,341
 92,587
 —
 464,476
Interest expense 33,906
 7,242
 3,332
 199,711
 244,191
General and administrative expenses —
 —
 —
 66,536
 66,536
Loss (gain) on derivatives and financial
instruments, net
 —
 (14,633) —
 —
 (14,633)
Loss (gain) on extinguishment of debt, net 110
 (32) 11,928
 —
 12,006
Impairment of assets 4,513
 28,304
 —
 —
 32,817
Other expenses 5,979
 2,077
 2,693
 3,021
 13,770
Income (loss) from continuing operations before income taxes and other items 159,675
 312,723
 74,502
 (268,402) 278,498
Income tax (expense) benefit (2,455) (1,824) (806) (344) (5,429)
(Loss) income from unconsolidated entities (14,684) 10,883
 2,621
 —
 (1,180)
Gain (loss) on real estate dispositions, net 4
 134,156
 214,779
 —
 348,939
Income (loss) from continuing operations 142,540
 455,938
 291,096
 (268,746) 620,828
Net income (loss) $142,540
 $455,938
 $291,096
 $(268,746) $620,828




25
Six Months Ended June 30, 2017 Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total
Rental income $445,180
 $—
 $277,561
 $—
 $722,741
Resident fees and services —
 1,347,377
 —
 —
 1,347,377
Interest income 41,580
 69
 —
 —
 41,649
Other income 4,321
 2,510
 1,830
 472
 9,133
Total revenues 491,081
 1,349,956
 279,391
 472
 2,120,900
Property operating expenses —
 921,536
 90,488
 —
 1,012,024
Consolidated net operating income 491,081
 428,420
 188,903
 472
 1,108,876
Interest expense 8,025
 31,219
 4,413
 191,170
 234,827
Loss (gain) on derivatives and financial instruments, net 1,960
 —
 —
 —
 1,960
Depreciation and amortization 119,781
 236,935
 96,408
 —
 453,124
General and administrative —
 —
 —
 63,733
 63,733
Loss (gain) on extinguishment of debt, net 29,083
 3,414
 4,373
 —
 36,870
Impairment of assets 4,846
 14,191
 5,625
 —
 24,662
Other expenses 7,190
 2,943
 1,671
 6,210
 18,014
Income (loss) from continuing operations before income taxes and income from unconsolidated entities 320,196
 139,718
 76,413
 (260,641) 275,686
Income tax (expense) benefit (2,271) 9,160
 (686) —
 6,203
Income (loss) from unconsolidated entities 9,505
 (37,640) 1,051
 —
 (27,084)
Income (loss) from continuing operations 327,430
 111,238
 76,778
 (260,641) 254,805
Gain (loss) on real estate dispositions, net 273,236
 13,011
 —
 —
 286,247
Net income (loss) $600,666
 $124,249
 $76,778
 $(260,641) $541,052

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 Six Months Ended Three Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
Revenues: Amount % Amount % Amount % Amount % Amount % Amount % Amount % Amount %
United States $895,734
 79.5% $851,943
 80.5% $1,759,523
 79.1% $1,710,611
 80.7% $1,092,376
 82.8% $895,734
 79.5% $2,136,042
 82.4% $1,759,523
 79.1%
United Kingdom 112,031
 10.0% 99,747
 9.4% 228,556
 10.3% 193,590
 9.1% 112,647
 8.5% 112,031
 10.0% 225,065
 8.7% 228,556
 10.3%
Canada 118,147
 10.5% 106,912
 10.1% 234,798
 10.6% 216,699
 10.2% 115,083
 8.7% 118,147
 10.5% 231,244
 8.9% 234,798
 10.6%
Total $1,125,912
 100.0% $1,058,602
 100.0% $2,222,877
 100.0% $2,120,900
 100.0% $1,320,106
 100.0% $1,125,912
 100.0% $2,592,351
 100.0% $2,222,877
 100.0%
                                
 As of   As of  
 June 30, 2018 December 31, 2017     June 30, 2019 December 31, 2018    
Assets: Amount % Amount %         Amount % Amount %        
United States $21,959,262
 79.5% $22,274,443
 79.7%         $27,496,270
 82.9% $24,884,292
 82.0%        
United Kingdom 3,208,929
 11.6% 3,239,039
 11.6%         3,173,654
 9.6% 3,078,994
 10.1%        
Canada 2,450,791
 8.9% 2,430,963
 8.7%         2,478,773
 7.5% 2,378,786
 7.9%        
Total $27,618,982
 100.0% $27,944,445
 100.0%         $33,148,697
 100.0% $30,342,072
 100.0%        


18.19.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 current year 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.” Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real 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, and 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 six months ended June 30, 20182019 and 2017,2018, 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. The company reflects current and deferred tax liabilities for any such withholding taxes incurred as a result of this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 20142015 and subsequent years and by state taxing authorities for the year ended December 31, 20132014 and subsequent years. The companyCompany and its subsidiaries are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to our initial investments in Canada in May 2012,2013, by HM Revenue & Customs for periods subsequent to our initial investments in the United Kingdom in August 2012 and by Luxembourg taxing authorities generally for periods subsequent to our establishment of certain Luxembourg-based subsidiaries during 2014. 2013.

26
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





19.20.Variable Interest Entities
We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be variable interest entities (“VIE”).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):
 June 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
Assets    
Net real property owned $983,005
 $1,002,137
Assets:    
Net real estate investments $966,417
 $973,813
Cash and cash equivalents 21,360
 12,308
 22,491
 18,678
Receivables and other assets 15,068
 16,330
 15,411
 14,600
Total assets(1)
 $1,019,433
 $1,030,775
 $1,004,319
 $1,007,091
        
Liabilities and equity    
Liabilities and equity:    
Secured debt $468,104
 $471,103
 $462,836
 $465,433
Lease liabilities 1,326
 —
Accrued expenses and other liabilities 15,210
 14,832
 21,922
 18,229
Total equity 536,119
 544,840
 518,235
 523,429
Total liabilities and equity $1,019,433
 $1,030,775
 $1,004,319
 $1,007,091
(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.


20.21. Subsequent Events
 
AcquisitionDisposition of Quality Care PropertiesBenchmark Senior Living On July 26, 2018,16, 2019, we completeddisposed of our Benchmark Senior Living portfolio for a $1.8 billion gross sale price. The portfolio consisted of 48 seniors housing operating properties located in New England. Proceeds were used to extinguish the acquisition of Quality Care Properties Inc. ("QCP"), with QCP shareholders receiving $20.75 of cash for each share of QCP common stock$1 billion bridge loan (discussed in Note 11) and all existing QCP debt was repaid. Prior to the acquisition, ProMedica Health System ("ProMedica") completed the acquisition of the operations of HCR ManorCare. Immediately following the acquisition of QCP, we formed an 80/20 joint venture with ProMedica to own the real estate associated with the 218 properties leased to ProMedica under a lease agreement with the following key terms: (i) 15-year absolute triple-net master lease with three five-year renewal options; (ii) initial annual cash rent of $179 million with a year one escalator of 1.375% and 2.75% annual escalators thereafter; and (iii) full corporate guarantee of ProMedica. We drew on a $1.0 billion term loan facility to fund a portion of the acquisition cash consideration and other related expenses. The term loan facility matures two years from the closing. In addition to the term loan facility draw, we drew on our unsecured credit facility described below, in order to fund the acquisition. The aggregate consideration to acquire the QCP shares and repay outstanding QCP debt was approximately $3.8 billion, exclusive of transaction costs, ProMedica's joint venture contribution and cash acquired. Initial accounting for the transaction is incomplete as of August 2, 2018 due to the complexity of the transaction. Pro forma financial information has not been provided herein due to a lack of sufficient information at the time of filing. We intend to file the pro forma financial information as an amendment to our Current Report on Form 8-K filed July 27, 2018.

Unsecured Credit Facility In July 2018, we closed on a new $3.7 billion unsecured credit facility with improved pricing across both our line of credit and term loan facility and terminated the existing unsecured credit facility (see Note 9 for further information on the former facilities). The new credit facility includes $3.0 billion of revolving credit capacity at a borrowing rate of 82.5 basis points over LIBOR, $500$24 million of USD term loan capacity at a borrowing rate of 90.0 basis points over LIBOR and $250 million of CAD term loan capacity at 90.0 basis points over CIDOR.secured debt.







2627
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


 EXECUTIVE SUMMARY
   
 Company Overview28
29
 Business Strategy28
29
 Key Transactions
29
 Key Performance Indicators, Trends and Uncertainties
30
 Corporate Governance32
33
   
 LIQUIDITY AND CAPITAL RESOURCES
   
 Sources and Uses of Cash32
33
 Off-Balance Sheet Arrangements33
34
 Contractual Obligations
34
 Capital Structure
34
   
 RESULTS OF OPERATIONS
   
 Summary
35
Triple-net35
 Seniors Housing Operating
35
Triple-net
37
 Outpatient Medical
39
 Non-Segment/Corporate
41
   
 OTHER
   
 Non-GAAP Financial Measures
42
 Critical Accounting Policies
49
 Cautionary Statement Regarding Forward-Looking Statements
50

28
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


The following discussion and analysis isare 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, 2017,2018, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” References herein to “we,” “us,” “our,” or the “company”“Company” refer to Welltower Inc. and its subsidiaries unless specifically noted otherwise.
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. The companyCompany 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. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets. 
The following table summarizes our consolidated portfolio for the three months ended June 30, 20182019 (dollars in thousands):
   Percentage of Number of   Percentage of Number of
Type of Property 
NOI(1)
 NOI Properties 
NOI(1)
 NOI Properties
Seniors Housing Operating $278,212
 45.0% 575
Triple-net $224,284
 40.3% 547
 227,935
 36.8% 671
Seniors housing operating 239,505
 43.0% 455
Outpatient medical 92,874
 16.7% 255
Outpatient Medical 112,378
 18.2% 352
Totals $556,663
 100.0% 1,257
 $618,525
 100.0% 1,598
            
(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.
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 are generally ableaim 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/propertyasset management and research efforts, we also aim to structure our relevant investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

For the six months ended June 30, 2018, rental income and2019, resident fees and services and rental income represented 30%69% and 67%30%, 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, resident fees and services, borrowings under our primary 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. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.
We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary 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 primary 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 available cash on-hand, we expect to borrow under our primary unsecured revolving credit facility.facility and Commercial Paper Program. At June 30, 2018,2019, we had $215,120,000$268,666,000 of cash and cash equivalents, $57,263,000$91,052,000 of restricted cash and $2,437,635,000$1,130,000,000 of available borrowing capacity under our primary unsecured revolving credit facility.
Key Transactions
Capital.     The following summarizes key capital transaction that occurred during the six months ended June 30, 2019:
In January 2019, we established an unsecured Commercial Paper Program. Under the terms of the program, we may issue, from time to time, unsecured commercial paper with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate principal amount outstanding at any time of $1,000,000,000.
In February 2019, we completed the issuance of $500,000,000 of 3.625% senior unsecured notes due 2024 and $550,000,000 of 4.125% senior unsecured notes due 2029 for net proceeds of approximately $1,036,964,000.
In February 2019, we elected to effect the mandatory conversion of all of the outstanding 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. Each share of convertible stock was converted into 0.8857 shares of common stock.
During the six months ended June 30, 2018, we completed the issuance of $550,000,000 of 4.25% senior unsecured notes for net proceeds of approximately $545,074,000,2019, we extinguished $196,573,000$151,473,000 of secured debt at a blended average interest rate of 5.7%4.42% and in March 2019 we repaid our 2.25% $450,000,000$600,000,000 of 4.125% senior unsecured notes at par on maturity on March 15, 2018.  due 2019 and $450,000,000 of 6.125% senior unsecured notes due 2020.
In addition,May 2019, we raised $10,133,000 through our dividend reinvestment program. During July 2018, we closeddrew on a new $3.7 billion$1,000,000,000 unsecured credit facility with improved pricing across both our line of credit and term loan facility and terminatedthat matures on May 28, 2020 which was put in place to bridge the existingacquisition of the CNL Healthcare Properties portfolio. The unsecured credit facility. The credit facility includes $3.0 billion of revolving credit capacity at a borrowing rate of 82.5 basis points over LIBOR, $500 million of USD term loan capacity at a borrowing ratefacility was subsequently extinguished in July 2019 with proceeds from the disposition of 90.0 basis points over LIBORthe Benchmark Senior Living portfolio.
During the six months ended June 30, 2019, we entered into amended and $250 millionrestated Equity Shelf Program (as defined below) pursuant to which we may offer and sell up to $1,500,000,000 of CAD term loan capacity at 90.0 basis points over CIDOR.common stock from time to time. We sold 10,884,000 shares of common stock under our ATM and DRIP programs, via both cash settle and forward sale agreements, generating expected gross proceeds of approximately $833,444,000.


29
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Investments.  The following summarizes our property acquisitions and joint venture investments completed during the six months ended June 30, 20182019 (dollars in thousands):
 Properties 
Investment Amount(1)
 
Capitalization Rates(2)
 
Book Amount(3)
 Properties 
Investment Amount(1)
 
Capitalization Rates(2)
 
Book Amount(3)
Seniors housing operating 11 $599,647
 6.7% $653,125
Outpatient medical 3 47,739
 6.0% 55,895
Seniors Housing Operating 51
 $1,159,864
 5.2% $1,308,656
Triple-net 4
 102,344
 6.4% 104,343
Outpatient Medical 66
 1,399,112
 5.7% 1,472,327
Totals 14
 $647,386
 6.7% $709,020
 121
 $2,661,320
 5.5% $2,885,326
                
(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 stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(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 on our books including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our unaudited consolidated financial statements for additional information.
(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.
(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.
In July 2018, we acquired all of the outstanding shares of Quality Care Properties, Inc. and entered into a related joint venture with ProMedica Health System.  For more information, please see Note 20 to the unaudited consolidated financial statements. 
Dispositions.  The following summarizes property dispositions made during the six months ended June 30, 20182019 (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  Properties 
Proceeds(1)
 
Capitalization Rates(2)
 
Book Amount(3)
Seniors Housing Operating(4)
 3
 $11,478
 2.2% $8,726
Triple-net 35
 614,823
 6.7% 442,865
Totals 38
 $626,301
 6.7% $451,591
         
(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.
(4) Includes the disposition of an unconsolidated real estate investment.

  Properties 
Proceeds(1)
 
Capitalization Rates(2)
 
Book Amount(3)
Triple-net 30
 $514,826
 7.7% $367,978
Seniors housing operating 2
 6,908
 6.5% 2,200
Outpatient medical 18
 428,727
 6.0% 223,069
Totals 50
 $950,461
 6.9% $593,247
         
(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.
Dividends. Our Board of Directors announced the annual cash dividend of $3.48 per common share ($0.87 per share quarterly), consistent with 2017.2018. The dividend declared for the quarter ended June 30, 20182019 represents the 189th193rd consecutive quarterly dividend payment.
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, concentration risk and credit strength. 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 StatementConsolidated 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”), consolidated net operating income (“NOI”) and same store NOI (“SSNOI”); 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 (and FFO per share amounts) 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, except per share amounts):

30
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 Three Month Ended Three Months Ended
 March 31, June 30, September 30, December 31, March 31, June 30, March 31, June 30, September 30, December 31, March 31, June 30,
 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 2019 2019
Net income (loss) $337,610
 $203,441
 $89,299
 $(89,743) $453,555
 $167,273
 $453,555
 $167,273
 $84,226
 $124,696
 $292,302
 $150,040
NICS 312,639
 188,429
 74,043
 (111,523) 437,671
 154,432
 437,671
 154,432
 64,384
 101,763
 280,470
 137,762
FFO 306,231
 384,390
 295,722
 179,224
 353,220
 378,725
 353,220
 378,725
 285,272
 374,966
 358,383
 390,021
NOI 552,129
 556,747
 567,486
 556,353
 540,500
 557,161
 540,500
 557,161
 579,222
 590,599
 601,438
 618,979
SSNOI 448,362
 460,001
 466,681
 462,358
 459,875
 477,988
 407,613
 417,399
 412,269
 408,687
 416,682
 409,789
                        
Per share data (fully diluted):            Per share data (fully diluted):        
NICS 0.86
 $0.51
 $0.20
 $(0.30) $1.17
 $0.41
 $1.17
 $0.41
 $0.17
 $0.27
 $0.71
 $0.34
FFO 0.84
 1.04
 0.80
 0.48
 0.95
 1.02
 $0.95
 $1.02
 $0.76
 $0.99
 $0.91
 $0.96
Credit Strength.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 IRCInternal Revenue Code ("IRC") Section 1031 deposits. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). 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 reconciliations 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:
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  Three Months Ended
  March, 31 June 30, September 30, December 31, March 31, June 30,
  2018 2018 2018 2018 2019 2019
             
Net debt to book capitalization ratio 42% 42% 46% 45% 43% 48%
Net debt to undepreciated book capitalization ratio 35% 36% 39% 38% 36% 41%
Net debt to market capitalization ratio 34% 31% 34% 31% 28% 30%
             
Interest coverage ratio 6.67x 4.34x 3.38x 3.60x 4.80x 3.74x
Fixed charge coverage ratio 5.49x 3.58x 2.85x 3.05x 4.38x 3.42x

  Three Months Ended
  March, 31 June 30, September 30, December 31, March 31, June 30,
  2017 2017 2017 2017 2018 2018
             
Net debt to book capitalization ratio 42% 41% 42% 43% 42% 42%
Net debt to undepreciated book            
capitalization ratio 36% 35% 36% 36% 35% 36%
Net debt to market capitalization ratio 29% 27% 29% 31% 34% 31%
             
Interest coverage ratio 5.67x 4.60x 3.63x 2.35x 6.67x 4.34x
Fixed charge coverage ratio 4.53x 3.72x 2.97x 1.93x 5.49x 3.58x
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: 

  Three Months Ended
  March 31, June 30, September 30, December 31, March 31, June 30,
  2017 2017 2017 2017 2018 2018
Property mix:(1)
            
Triple-net 45% 44% 43% 42% 41% 40%
Seniors housing operating 38% 39% 40% 41% 42% 43%
Outpatient medical 17% 17% 17% 17% 17% 17%
             
Relationship mix:(1)
            
Sunrise Senior Living(2)
 14% 14% 14% 14% 15% 15%
Brookdale Senior Living 7% 7% 7% 7% 7% 8%
Revera(2)
 7% 7% 7% 7% 7% 7%
Genesis HealthCare 9% 9% 9% 7% 6% 6%
Benchmark Senior Living 4% 5% 5% 4% 4% 5%
Remaining relationships 59% 58% 58% 61% 61% 59%
             
Geographic mix:(1)
            
California 13% 14% 13% 13% 14% 14%
United Kingdom 9% 9% 9% 9% 10% 9%
Canada 8% 8% 8% 8% 9% 8%
Texas 7% 7% 7% 8% 8% 8%
New Jersey 7% 8% 8% 8% 8% 7%
Remaining geographic areas 56% 54% 55% 54% 51% 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.
(2) Revera owns a controlling interest in Sunrise Senior Living.
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

  Three Months Ended
  March 31, June 30, September 30, December 31, March 31, June 30,
  2018 2018 2018 2018 2019 2019
Property mix:(1)
            
Seniors Housing Operating 42% 43% 46% 43% 44% 45%
Triple-net 41% 40% 38% 40% 39% 37%
Outpatient Medical 17% 17% 16% 17% 17% 18%
             
Relationship mix:(1)
            
Sunrise Senior Living(2)
 15% 15% 15% 14% 15% 14%
ProMedica —% —% 7% 9% 9% 9%
Revera(2)
 7% 7% 7% 6% 6% 6%
Genesis HealthCare 6% 6% 6% 6% 5% 5%
Benchmark Senior Living(3)
 4% 5% 4% 4% 4% 5%
Remaining relationships 68% 67% 61% 61% 61% 61%
             
Geographic mix:(1)
            
California 14% 14% 13% 13% 13% 13%
United Kingdom 10% 9% 9% 9% 9% 8%
Texas 8% 8% 7% 8% 8% 8%
Canada 9% 8% 8% 8% 7% 7%
New Jersey 8% 7% 7% 7% 7% 7%
Remaining geographic areas 51% 54% 56% 55% 56% 57%
             
(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) The Benchmark Senior Living portfolio was sold in July 2019.
Lease Expirations.Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of June 30, 20182019 (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  
Expiration Year(1)
  2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Thereafter
Triple-net:                      
Properties 30
 —
 7
 11
 —
 4
 48
 93
 19
 19
 417
Base rent(2)
 $34,168
 $—
 $12,254
 $9,023
 $—
 $11,096
 $52,542
 $123,519
 $35,571
 $22,128
 $466,866
% of base rent 4.5% —% 1.6% 1.2% —% 1.4% 6.8% 16.1% 4.6% 2.9% 60.9%
Units/beds 2,540
 —
 1,316
 1,182
 —
 692
 3,033
 7,452
 2,401
 1,979
 43,890
% of Units/beds 3.9% —% 2.0% 1.8% —% 1.1% 4.7% 11.6% 3.7% 3.1% 68.1%
                       
Outpatient Medical:  
  
  
  
  
  
  
  
  
  
Square feet 902,986
 1,669,510
 1,988,685
 2,106,936
 2,116,845
 2,003,818
 1,129,172
 1,448,787
 817,114
 880,070
 5,746,479
Base rent(2)
 $25,166
 $45,925
 $54,771
 $57,230
 $57,127
 $58,855
 $29,965
 $36,921
 $20,315
 $23,309
 $120,638
% of base rent 4.7% 8.7% 10.3% 10.8% 10.8% 11.1% 5.7% 7.0% 3.8% 4.4% 22.8%
Leases 255
 412
 404
 397
 426
 294
 176
 190
 112
 102
 266
% of Leases 8.3% 13.6% 13.3% 13.1% 14.0% 9.7% 5.8% 6.3% 3.7% 3.4% 8.8%
                       
(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.

  
Expiration Year(1)
  2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Thereafter
Triple-net:                      
Properties 150
 —
 —
 3
 7
 7
 4
 50
 55
 20
 233
Base rent(2)
 $204,547
 $—
 $—
 $4,495
 $3,589
 $—
 $10,842
 $65,251
 $99,230
 $37,085
 $375,973
% of base rent 25.5% —% —% 0.6% 0.4% —% 1.4% 8.1% 12.4% 4.6% 47.0%
Units/beds 13,897
 —
 —
 571
 769
 1,115
 692
 3,893
 5,867
 2,501
 21,552
% of Units/beds 27.3% —% —% 1.1% 1.5% 2.2% 1.4% 7.7% 11.5% 4.9% 42.4%
                       
Outpatient medical:  
  
  
  
  
  
  
  
  
  
Square feet 455,724
 1,149,774
 1,341,407
 1,579,551
 1,721,178
 1,205,516
 1,161,620
 728,037
 1,184,766
 405,253
 4,751,125
Base rent(2)
 $11,820
 $31,589
 $36,508
 $42,780
 $45,367
 $32,458
 $33,681
 $20,780
 $29,875
 $11,515
 $112,893
% of base rent 2.9% 7.7% 8.9% 10.5% 11.1% 7.9% 8.2% 5.1% 7.3% 2.8% 27.6%
Leases 165
 307
 319
 295
 303
 260
 133
 122
 137
 80
 193
% of Leases 7.1% 13.3% 13.8% 12.7% 13.1% 11.2% 5.7% 5.3% 5.9% 3.5% 8.4%
                       
(1) Excludes investments in unconsolidated entities. Investments classified as held for sale are included in the current year.
(2) The most recent monthly base rent annualized, including straight-line for leases with fixed escalators or annual cash rents for leases with contingent escalators.  Base rent does not include tenant recoveries or amortization of above and below market lease intangibles.
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, 2017,2018, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

32
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
As of December 31, 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-18, “Restricted Cash,” and ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments.”  See Note 2 to the unaudited consolidated financial statements for further information.
Sources and Uses of Cash
Our primary sources of cash include resident fees and services, rent and interest receipts, resident fees and services, borrowings under our primary 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. 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 (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  Six Months Ended Change
  June 30, 2019 June 30, 2018 $ %
Cash, cash equivalents and restricted cash at beginning of period $316,129
 $309,303
 $6,826
 2 %
Cash provided from (used in) operating activities 854,482
 838,424
 16,058
 2 %
Cash provided from (used in) investing activities (2,531,364) 130,251
 (2,661,615) -2,043 %
Cash provided from (used in) financing activities 1,720,804
 (1,000,290) 2,721,094
 272 %
Effect of foreign currency translation (333) (5,305) 4,972
 94 %
Cash, cash equivalents and restricted cash at end of period $359,718
 $272,383
 $87,335
 32 %

  Six Months Ended Change
  June 30, 2018 June 30, 2017 $ %
Cash, cash equivalents and restricted cash at beginning of period $309,303
 $607,220
 $(297,917) -49 %
Cash provided from (used in) operating activities 838,424
 844,109
 (5,685) -1 %
Cash provided from (used in) investing activities 130,251
 756,640
 (626,389) -83 %
Cash provided from (used in) financing activities (1,000,290) (1,731,977) 731,687
 -42 %
Effect of foreign currency translation (5,305) 11,649
 (16,954) n/a
Cash, cash equivalents and restricted cash at end of period $272,383
 $487,641
 $(215,258) -44 %
Operating Activities. The change in net cash provided from operating activities was immaterial. Please see “Results of Operations” for discussion of net income fluctuations. For the six months ended June 30, 20182019 and 2017,2018, cash flow 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 changes in acquisition and dispositions, which are summarized above in “Key Transactions” and Notes 3 and 5 of our unaudited consolidated financial statements. The following is a summary of cash used in non-acquisition capital improvement activities (dollars in thousands):
  Six months ended Change
  June 30, June 30,    
  2018 2017 $ %
New development $62,978
 $149,046
 $(86,068) -58 %
Recurring capital expenditures, tenant improvements and lease commissions 35,116
 28,668
 6,448
 22 %
Renovations, redevelopments and other capital improvements 76,216
 64,479
 11,737
 18 %
Total $174,310
 $242,193
 $(67,883) -28 %
  Six Months Ended Change
  June 30, 2019 June 30, 2018 $ %
New development $155,409
 $62,978
 $92,431
 147 %
Recurring capital expenditures, tenant improvements and lease commissions 49,925
 35,116
 14,809
 42 %
Renovations, redevelopments and other capital improvements 74,251
 76,216
 (1,965) -3 %
Total $279,585
 $174,310
 $105,275
 60 %
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. Generally, these expenditures have increased as a result of acquisitions, primarily in our seniors housing operating segment.
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 issuance/redemption of common and preferred stock and dividend payments.payments which are summarized above in "Key Transactions". Please refer to Notes 9, 10, 11 and 1314 of our unaudited consolidated financial statements for additional information.

33
WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Off-Balance Sheet Arrangements
At June 30, 2018,2019, we had investments in unconsolidated entities with our ownership interests ranging from 10% to 50%. Please see Note 7 to our unaudited consolidated financial statements for additional information.  We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. Please see Note 11 to our unaudited consolidated financial statements for additional information.  At June 30, 2018,2019, we had 14 outstanding letter of credit obligations. Please see NoteNotes 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 June 30, 20182019 (in thousands):
 Payments Due by Period Payments Due by Period
Contractual Obligations Total 2018 2019-2020 2021-2022 Thereafter Total 2019 2020-2021 2022-2023 Thereafter
Unsecured revolving credit facility(1)
 $540,000
 $—
 $—
 $540,000
 $—
Senior unsecured notes and term credit facilities:(2,7)
 
        
Unsecured credit facility and commercial paper(1,2)
 $1,870,000
 $935,000
 $—
 $935,000
 $—
Senior unsecured notes and term credit facilities:(2)
 
        
U.S. Dollar senior unsecured notes 6,150,000
 —
 1,050,000
 1,050,000
 4,050,000
 8,450,000
 —
 1,450,000
 1,700,000
 5,300,000
Canadian Dollar senior unsecured notes(3)
 228,310
 —
 228,310
 —
 —
 229,165
 —
 229,165
 —
 —
Pounds Sterling senior unsecured notes(3)
 1,385,685
 —
 —
 —
 1,385,685
 1,333,920
 —
 —
 —
 1,333,920
U.S. Dollar term credit facility 507,500
 —
 7,500
 500,000
 —
 507,500
 —
 7,500
 500,000
 —
Canadian Dollar term credit facility(3)
 190,259
 —
 —
 190,259
 —
 190,971
 —
 —
 190,971
 —
Secured debt:(2,3)
 
         
        
Consolidated 2,462,078
 197,438
 614,642
 564,951
 1,085,047
 2,689,982
 312,291
 527,943
 682,908
 1,166,840
Unconsolidated  749,995
 20,084
 110,952
 38,030
 580,929
 770,687
 31,538
 68,069
 53,943
 617,137
Contractual interest obligations:(4)
 
         
        
Unsecured revolving credit facility 56,532
 8,076
 32,304
 16,152
 —
Unsecured credit facility and commercial paper 120,634
 15,079
 60,317
 45,238
 —
Senior unsecured notes and term loans(3)
 3,194,525
 221,794
 713,991
 555,523
 1,703,217
 4,038,896
 259,830
 826,444
 711,116
 2,241,506
Consolidated secured debt(3)
 487,588
 46,880
 151,660
 108,243
 180,805
 502,618
 49,625
 159,559
 110,554
 182,880
Unconsolidated secured debt(3)
 204,531
 14,362
 52,616
 44,226
 93,327
 196,781
 14,745
 52,201
 48,783
 81,052
Capital lease obligations(5)
 86,352
 2,087
 8,346
 8,346
 67,573
Operating lease obligations(5)
 1,115,108
 8,937
 35,737
 34,255
 1,036,179
Purchase obligations(5,7)
 378,893
 168,366
 210,527
 —
 —
Financing lease liabilities(5)
 184,511
 4,461
 17,196
 76,773
 86,081
Operating lease liabilities(5)
 1,542,933
 8,637
 33,843
 31,797
 1,468,656
Purchase obligations(6)
 491,686
 224,234
 222,195
 41,113
 4,144
Other long-term liabilities(6)
 1,966
 737
 1,229
 —
 —
 492
 492
 —
 —
 —
Total contractual obligations $17,739,322
 $688,761
 $3,217,814
 $3,649,985
 $10,182,762
 $23,120,776
 $1,855,932
 $3,654,432
 $5,128,196
 $12,482,216
                    
(1) Relates to unsecured revolving credit facility with an aggregate commitment of $3,000,000,000. See Note 9 and Note 20 to our unaudited consolidated financial statements for additional information.
(1) Relates to our unsecured credit facility and commercial paper with an aggregate commitment of $3,000,000,000. See Note 10 to our unaudited consolidated financial statements for additional information.
(1) Relates to our unsecured credit facility and commercial paper with an aggregate commitment of $3,000,000,000. See Note 10 to our unaudited consolidated financial statements for additional information.
(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(3) Based on foreign currency exchange rates in effect as of balance sheet date.(3) Based on foreign currency exchange rates in effect as of balance sheet date.
(3) Based on foreign currency exchange rates in effect as of balance sheet date.
(4) Based on variable interest rates in effect as of balance sheet date.(4) Based on variable interest rates in effect as of balance sheet date.
(4) Based on variable interest rates in effect as of balance sheet date.
(5) See Note 12 to our unaudited consolidated financial statements for additional information.
(6) Primarily relates to payments to be made under a supplemental executive retirement plan for one former executive officer.
(7) Excludes acquisition of Quality Care Properties as discussed in Note 20 to our unaudited consolidated financial statements.
(5) See Note 6 to our unaudited consolidated financial statements for additional information.
(5) See Note 6 to our unaudited consolidated financial statements for additional information.
(6) See Note 13 to our unaudited consolidated financial statements for additional information.
(6) 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 June 30, 2018,2019, we were in compliance with all of the covenants under our debt agreements. None 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 in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.
On May 17, 2018, we filed with the 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 July 27, 2018, 14,979,70219, 2019, 4,300,170 shares of common


34
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

stock remained available for issuance under the DRIP registration statement. We haveOn February 25, 2019 we entered into separate amended and restated equity distribution agreements with each of Morgan StanleyBarclays Capital Inc., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman SachsMorgan Stanley & Co. LLC, MUFG Securities Americas Inc., RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC relating to the offer and sale from time to time of up to $1,000,000,000$1,500,000,000 aggregate amount of our common stock (“Equity Shelf Program”). The Equity Shelf Program also allows us to enter into forward sale agreements. We expect that, if entered into, we will physically settle each forward sale agreement on one
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

or more dates on or prior to the maturity date of that particular forward sale agreement, in which case we will expect to receive per share cash proceeds at settlement equal to the forward sale price under the relevant forward sale agreement.  However, we may also elect to cash settle or net share settle a forward sale agreement.  As of July 27, 2018,19, 2019, we had $784,083,000$1,360,820,000 of remaining capacity under the Equity Shelf Program, and there were no outstandingwhich excludes forward sales agreements. We areagreements outstanding for the sale of 2,556,481 shares with maturity dates in the process of updatingfourth quarter. We expect to physically settle the registration statementforward sales for the Equity Shelf Program during the third quarter.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 primary unsecured revolving credit facility.facility and Commercial Paper Program.
Results of Operations
Summary
     Our primary sources of revenue include rent, resident fees and services, rent and interest income. Our primary expenses include interest expense, depreciation and amortization, interest expense, property operating expenses, general and administrative expenses and other expenses. We evaluate our business and make resource allocations on our three business segments: triple-net, seniors housing operatingSeniors Housing Operating, Triple-net and outpatient medical.Outpatient Medical. The primary performance measures for our properties are NOI and SSNOI, which are 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 Six Months Ended Change Three Months Ended Change Six Months Ended Change
 June 30,
June 30,     June 30, June 30,     June 30,
June 30,     June 30, June 30,    
 2018
2017 Amount % 2018 2017 Amount % 2019
2018 Amount % 2019 2018 Amount %
Net income $167,273
 $203,441
 $(36,168) -18 % $620,828
 $541,052
 $79,776
 15 % $150,040
 $167,273
 $(17,233) -10 % $442,342
 $620,828
 $(178,486) -29 %
NICS 154,432
 188,429
 (33,997) -18 % 592,103
 501,068
 91,035
 18 % 137,762
 154,432
 (16,670) -11 % 418,232
 592,103
 (173,871) -29 %
FFO 378,725
 384,390
 (5,665) -1 % 731,945
 690,623
 41,322
 6 % 390,021
 378,725
 11,296
 3 % 748,404
 731,945
 16,459
 2 %
EBITDA 528,805
 536,071
 (7,266) -1 % 1,334,924
 1,222,800
 112,124
 9 % 541,027
 528,805
 12,222
 2 % 1,224,715
 1,334,924
 (110,209) -8 %
NOI 557,161
 556,747
 414
 — % 1,097,661
 1,108,876
 (11,215) -1 % 618,979
 557,161
 61,818
 11 % 1,220,417
 1,097,661
 122,756
 11 %
SSNOI 477,988
 460,001
 17,987
 4 % 937,863
 908,363
 29,500
 3 % 409,789
 417,399
 (7,610) -1.8 % 826,471
 825,012
 1,459
 0.2 %
                
Per share data (fully diluted):                                
NICS $0.41
 $0.51
 $(0.10) -20 % $1.59
 $1.37
 $0.22
 16 % $0.34
 $0.41
 $(0.07) -17 % $1.05
 $1.59
 $(0.54) -34 %
FFO $1.02
 $1.04
 $(0.02) -2 % $1.96
 $1.88
 $0.08
 4 % $0.96
 $1.02
 $(0.06) -6 % $1.87
 $1.96
 $(0.09) -5 %
                                
Interest coverage ratio 4.34x 4.60x (0.26)x -6 % 5.50x 5.14x 0.36x 7 % 3.74x 4.34x (0.60)x -14 % 4.27x 5.50x (1.23)x -22 %
Fixed charge coverage ratio 3.58x 3.72x (0.14)x -4 % 4.53x 4.13x 0.40x 10 % 3.42x 3.58x (0.16)x -4 % 3.90x 4.53x (0.63)x -14 %
Triple-netSeniors Housing Operating
The following is a summary of our NOI and SSNOI for the triple-netSeniors Housing Operating segment (dollars in thousands):
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2018 2017 $ % 2018 2017 $ %
NOI $224,284
 $241,347
 $(17,063) -7 % $447,022
 $491,081
 $(44,059) -9 %
Non SSNOI attributable to same store properties (3,446) (8,557) 5,111
 -60 % (12,321) (17,956) 5,635
 -31 %
NOI attributable to non same store properties(1)
 (38,523) (64,203) 25,680
 -40 % (85,294) (137,750) 52,456
 -38 %
SSNOI(2)
 $182,315
 $168,587
 $13,728
 8 % $349,407
 $335,375
 $14,032
 4 %
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2019 2018 $ % 2019 2018 $ %
NOI $278,212
 $239,505
 $38,707
 16.2 % $542,912
 $464,731
 $78,181
 16.8 %
Non SSNOI attributable to same store properties 1,384
 358
 1,026
 286.6 % 3,299
 627
 2,672
 426.2 %
NOI attributable to non same store properties(1)
 (88,898) (45,907) (42,991) -93.6 % (159,122) (80,572) (78,550) -97.5 %
SSNOI(2)
 $190,698
 $193,956
 $(3,258) -1.7 % $387,089
 $384,786
 $2,303
 0.6 %
(1) Change is primarily due to the acquisition of 17 properties, the transitioning/restructuring of 15 properties, and the conversion of 16 construction projects into revenue-generating63 properties subsequent to January 1, 20172018 and 35 held for salethe transition of 81 properties at June 30, 2018.from Triple-net to Seniors Housing Operating.
(2) Relates to 463365 same store properties.



35
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


The following is a summary of our Seniors Housing Operating results of operations (dollars in thousands):
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2019 2018 $ % 2019 2018 $ %
Revenues:                
Resident fees and services $914,085
 $763,345
 $150,740
 20 % $1,782,370
 $1,499,279
 $283,091
 19 %
Interest income —
 172
 (172) -100 % —
 257
 (257) -100 %
Other income 1,444
 1,650
 (206) -12 % 5,545
 2,798
 2,747
 98 %
Total revenues 915,529
 765,167
 150,362
 20 % 1,787,915
 1,502,334
 285,581
 19 %
Property operating expenses 637,317
 525,662
 111,655
 21 % 1,245,003
 1,037,603
 207,400
 20 %
NOI(1)
 278,212
 239,505
 38,707
 16 % 542,912
 464,731
 78,181
 17 %
Other expenses:        
        
Depreciation and amortization 136,551
 134,779
 1,772
 1 % 268,126
 260,548
 7,578
 3 %
Interest expense 17,572
 16,971
 601
 4 % 35,823
 33,906
 1,917
 6 %
Loss (gain) on extinguishment of debt, net —
 299
 (299) -100 % —
 110
 (110) -100 %
Impairment of assets —
 2,212
 (2,212) -100 % —
 4,513
 (4,513) -100 %
Other expenses 11,857
 6,167
 5,690
 92 % 14,803
 5,979
 8,824
 148 %
  165,980
 160,428
 5,552
 3 % 318,752
 305,056
 13,696
 4 %
Income (loss) from continuing operations
before income taxes and other items
 112,232
 79,077
 33,155
 42 % 224,160
 159,675
 64,485
 40 %
Income tax benefit (expense) 375
 (2,617) 2,992
 114 % (244) (2,455) 2,211
 90 %
Income (loss) from unconsolidated entities (17,453) (5,204) (12,249) -235 % (34,033) (14,684) (19,349) -132 %
Gain (loss) on real estate dispositions, net (550) (1) (549) -54,900 % (710) 4
 (714) -17,850 %
Income from continuing operations 94,604
 71,255
 23,349
 33 % 189,173
 142,540
 46,633
 33 %
Net income (loss) 94,604
 71,255
 23,349
 33 % 189,173
 142,540
 46,633
 33 %
Less: Net income (loss) attributable to
noncontrolling interests
 2,236
 (766) 3,002
 392 % 3,977
 (1,664) 5,641
 339 %
Net income (loss) attributable to
common stockholders
 $92,368
 $72,021
 $20,347
 28 % $185,196
 $144,204
 $40,992
 28 %
                 
(1) See Non-GAAP Financial Measures.
        
Fluctuations in revenues and property operating expenses are primarily a result of acquisitions, segment transitions and the movement of U.S. and foreign currency exchange rates. The fluctuations in depreciation and amortization are due to acquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.
During the three and six months ended June 30, 2018, we recorded impairment charges on certain held for sale properties as the carrying value exceeded the estimated fair value less costs to sell. Changes in the gain/loss on sale of properties are related to the volume of property sales and sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The increase in other expenses is primarily due to additional noncapitalizable transactions costs from acquisitions and operator transitions.
During the six months ended June 30, 2019, we completed two seniors housing operating construction projects representing $28,117,000 or $109,405 per unit. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of June 30, 2019 (dollars in thousands):
Location Units Commitment Balance Est. Completion
Taylor, PA 113
 $14,272
 $8,801
 4Q19
Wandsworth, UK 97
 74,890
 51,699
 1Q20
Beavercreek, OH 100
 12,032
 8,361
 1Q20
Potomac, MD 120
 56,720
 11,881
 4Q20
  430
 $157,914
 80,742
  
Toronto, ON Project in planning stage 42,486
  
Hendon, UK Project in planning stage 27,539
  
Barnet, UK Project in planning stage 24,310
  
Washington, DC Project in planning stage 16,412
  
      $191,489
  

36
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 currency rates, extinguishments and principal amortizations. The following is a summary of our Seniors Housing Operating segment secured debt principal activity (dollars in thousands):
  Three Months Ended Six Months Ended
  June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
    Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.
  Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $1,995,343
 3.79% $1,931,401
 3.68% $1,810,587
 3.87% $1,988,700
 3.66%
Debt issued 48,806
 2.94% 24,280
 3.06% 295,969
 3.52% 44,606
 3.38%
Debt assumed —
 0.00% —
 0.00% 42,000
 4.62% 85,192
 4.40%
Debt extinguished (36,903) 2.74% (13,165) 3.57% (151,473) 4.42% (131,175) 4.85%
Principal payments (11,225) 3.49% (12,062) 3.57% (22,430) 3.44% (24,001) 3.56%
Foreign currency 22,159
 3.31% (21,039) 3.30% 43,527
 3.33% (53,907) 3.29%
Ending balance $2,018,180
 3.80% $1,909,415
 3.73% $2,018,180
 3.80% $1,909,415
 3.73%
                 
Monthly averages $1,996,642
 3.80% $1,922,640
 3.71% $1,950,546
 3.82% $1,932,618
 3.68%
     The majority of our Seniors Housing Operating properties are formed through partnership interests. Losses from unconsolidated entities are largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures, as well as the disposal of an investment in an unconsolidated entity during the quarter ended June 30, 2019. 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 NOI and SSNOI for the Triple-net segment (dollars in thousands):
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2019 2018 $ % 2019 2018 $ %
NOI $227,935
 $224,284
 $3,651
 1.6 % $461,221
 $447,022
 $14,199
 3.2 %
Non SSNOI attributable to same store properties (8,114) (4,068) (4,046) -99.5 % (15,707) (14,796) (911) -6.2 %
NOI attributable to non same store properties(1)
 (87,819) (83,148) (4,671) -5.6 % (180,659) (164,603) (16,056) -9.8 %
SSNOI(2)
 $132,002
 $137,068
 $(5,066) -3.7 % $264,855
 $267,623
 $(2,768) -1.0 %
(1) Change is primarily due to the acquisition of 237 properties, the transitioning/restructuring of six properties, and the conversion of seven construction projects into revenue-generating properties subsequent to January 1, 2018 and 30 held for sale properties at June 30, 2019.
(2) Relates to 388 same store properties.













37
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-netTriple-net segment (dollars in thousands):
 Three Months Ended Change Six Months Ended Change Three Months Ended Change Six Months Ended Change
 June 30, June 30,     June 30, June 30,     June 30, June 30,     June 30, June 30,    
 2018 2017 $ % 2018 2017 $ % 2019 2018 $ % 2019 2018 $ %
Revenues:                                
Rental income $197,961
 $217,889
 $(19,928) -9 % $404,792
 $445,180
 $(40,388) -9 % $222,362
 $197,961
 $24,401
 12 % $454,394
 $404,792
 $49,602
 12 %
Interest income 13,247
 20,901
 (7,654) -37 % 27,798
 41,580
 (13,782) -33 % 17,118
 13,247
 3,871
 29 % 32,064
 27,798
 4,266
 15 %
Other income 13,212
 2,557
 10,655
 417 % 14,589
 4,321
 10,268
 238 % 1,278
 13,212
 (11,934) -90 % 2,541
 14,589
 (12,048) -83 %
Total revenues 224,420
 241,347
 (16,927) -7 % 447,179
 491,081
 (43,902) -9 % 240,758
 224,420
 16,338
 7 % 488,999
 447,179
 41,820
 9 %
Property operating expenses 136
 —
 136
 n/a
 157
 —
 157
 n/a
 12,823
 136
 12,687
 9,329 % 27,778
 157
 27,621
 17,593 %
NOI(1)
 224,284
 241,347
 (17,063) -7 % 447,022
 491,081
 (44,059) -9 % 227,935
 224,284
 3,651
 2 % 461,221
 447,022
 14,199
 3 %
Other expenses:        
        
        
        
Depreciation and amortization 56,056
 55,309
 747
 1 % 117,404
 111,341
 6,063
 5 %
Interest expense 3,800
 2,515
 1,285
 51 % 7,242
 8,025
 (783) -10 % 3,225
 3,800
 (575) -15 % 6,665
 7,242
 (577) -8 %
Loss (gain) on derivatives and financial instruments, net (7,460) 736
 (8,196) n/a
 (14,633) 1,960
 (16,593) n/a
 1,913
 (7,460) 9,373
 126 % (574) (14,633) 14,059
 96 %
Depreciation and amortization 55,309
 60,171
 (4,862) -8 % 111,341
 119,781
 (8,440) -7 %
Loss (gain) on extinguishment of debt, net —
 —
 —
 n/a
 (32) 29,083
 (29,115) n/a
 —
 —
 —
 n/a
 —
 (32) 32
 100 %
Provision for loan losses —
 —
 —
 n/a
 18,690
 —
 18,690
 n/a
Impairment of assets 2,420
 4,846
 (2,426) -50 % 28,304
 4,846
 23,458
 484 % (940) 2,420
 (3,360) -139 % (940) 28,304
 (29,244) -103 %
Other expenses 957
 2,181
 (1,224) -56 % 2,077
 7,190
 (5,113) -71 % 5,560
 957
 4,603
 481 % 8,589
 2,077
 6,512
 314 %
Total other expenses 55,026
 70,449
 (15,423) -22 % 134,299
 170,885
 (36,586) -21 %
Income from continuing operations before income taxes and income (loss) from unconsolidated entities 169,258
 170,898
 (1,640) -1 % 312,723
 320,196
 (7,473) -2 %
 65,814
 55,026
 10,788
 20 % 149,834
 134,299
 15,535
 12 %
Income from continuing operations before income taxes and other items 162,121
 169,258
 (7,137) -4 % 311,387
 312,723
 (1,336) — %
Income tax (expense) benefit (688) (1,471) 783
 -53 % (1,824) (2,271) 447
 -20 % (1,361) (688) (673) -98 % (2,312) (1,824) (488) -27 %
Income (loss) from unconsolidated entities 5,062
 3,867
 1,195
 31 % 10,883
 9,505
 1,378
 14 % 6,578
 5,062
 1,516
 30 % 12,236
 10,883
 1,353
 12 %
Gain (loss) on real estate dispositions, net (1,130) 10,759
 (11,889) -111 % 166,444
 134,156
 32,288
 24 %
Income from continuing operations 173,632
 173,294
 338
 ��� % 321,782
 327,430
 (5,648) -2 % 166,208
 184,391
 (18,183) -10 % 487,755
 455,938
 31,817
 7 %
Gain (loss) on real estate dispositions, net 10,759
 42,155
 (31,396) -74 % 134,156
 273,236
 (139,080) -51 %
Net income 184,391
 215,449
 (31,058) -14 % 455,938
 600,666
 (144,728) -24 % 166,208
 184,391
 (18,183) -10 % 487,755
 455,938
 31,817
 7 %
Less: Net income (loss) attributable to noncontrolling interests 1,253
 970
 283
 29 % 3,216
 1,573
 1,643
 104 % 9,230
 1,253
 7,977
 637 % 18,326
 3,216
 15,110
 470 %
Net income attributable to
common stockholders
 $183,138
 $214,479
 $(31,341) -15 % $452,722
 $599,093
 $(146,371) -24 % $156,978
 $183,138
 $(26,160) -14 % $469,429
 $452,722
 $16,707
 4 %
                                
(1) See Non-GAAP Financial Measures.(1) See Non-GAAP Financial Measures.        
(1) See Non-GAAP Financial Measures.
        
The decreaseincrease in rental income is primarily attributable to acquisitions including Quality Care Properties Inc. ("QCP") in July 2018, partially offset by the disposition or segment transition of properties exceeding new acquisitionsvarious properties. In addition, we have recorded certain real estate property taxes on a gross basis, with the offset to property operating expenses, as well as the reduction in the Genesis annual cash rent obligation due to the restructuringa result of the master lease as ofour ASC 842 adoption on January 1, 2018.2019. 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 June 30, 2018,2019, we had 11 leases with rental rate increasers ranging from 0.14%0.13% to 0.34%0.70% in our triple-netTriple-net portfolio. The decrease in interest income is primarily related to the volume of loan payoffs during 2017 and 2018. The increase in other income is primarily due to $10,805,000 of net lease termination fees recognized during the three months ended June 30, 2018.
Depreciation and amortization increased primarily decreased as a result of the dispositionacquisitions of triple-net properties exceeding new acquisitions.dispositions. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly. 
In March 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for certain real estate loans receivable that are no longer deemed collectible. During the three and six months ended June 30, 2018, and 2017, we recorded impairment charges on certain held for sale triple-net properties as the carrying values exceeded the estimated fair value less costs to sell. 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 decreaseincrease in other expenses is primarily due to feweradditional noncapitalizable transaction costs from acquisitions.acquisitions and operator transitions.
The following is a summary of Triple-net construction projects, excluding expansions, pending as of June 30, 2019 (dollars in thousands):

38
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

During thesix months ended June 30, 2018, we completed one triple-net construction project totaling $59,188,000 or $510,241 per bed/unit.  The following is a summary of triple-net construction projects, excluding expansions, pending as of June 30, 2018 (dollars in thousands):
Location Units/Beds Commitment Balance Est. Completion Units/Beds Commitment Balance Est. Completion
Exton, PA 120
 $34,175
 $26,710
 3Q18
Westerville, OH 90
 22,800
 5,647
 3Q19 90
 $22,800
 $13,925
 3Q19
StoryPoint, KY 162
 34,600
 4,210
 1Q20
Union, KY 162
 34,600
 18,000
 1Q20
Droitwich, UK 70
 16,714
 4,721
 1Q20 70
 16,090
 6,870
 2Q20
Thousand Oaks, CA 82
 24,763
 6,256
 4Q20
 442
 $108,289
 $41,288
   404
 $98,253
 $45,051
  
Interest expense for the six months ended June 30, 2018 and 2017 represents secured debt interest expense and related fees. The change in interest expense is due to 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 fluctuation in loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustment recorded on the Genesis HealthCare available-for-sale investment in accordance with the adoption of ASU No. 2016-01 described in Note 2 to our unaudited consolidated financial statements.  The fluctuation in losses/gains on debt extinguishment is attributable to the large volume of extinguishments in the first quarter of 2017.investment. The following is a summary of our triple-netTriple-net secured debt principal activity (dollars in thousands):
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.
 Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $347,342
 3.500% $339,270
 3.549% $347,474
 3.546% $594,199
 4.580% $292,258
 3.62% $347,342
 3.50% $288,386
 3.63% $347,474
 3.55%
Debt extinguished —
 0.00% —
 0.00% —
 0.00% (4,107) 4.94%
Principal payments (1,055) 5.573% (1,066) 5.563% (2,071) 5.490% (3,597) 5.723% (952) 5.25% (1,055) 5.57% (1,909) 5.25% (2,071) 5.49%
Debt extinguished —
 0.000% —
 0.000% (4,107) 4.940% (255,553) 5.923%
Foreign currency (12,254) 2.717% 7,662
 2.833% (7,263) 3.594% 10,817
 2.823% (3,354) 3.21% (12,254) 2.72% 1,475
 4.77% (7,263) 3.59%
Ending balance $334,033
 3.526% $345,866
 3.532% $334,033
 3.526% $345,866
 3.532% $287,952
 3.63% $334,033
 3.53% $287,952
 3.63% $334,033
 3.53%
                                
Monthly averages $340,332
 3.370% $342,670
 3.534% $343,820
 3.435% $451,143
 4.144% $289,328
 3.62% $340,332
 3.37% $291,073
 3.62% $343,820
 3.44%
A portion of our triple-netTriple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses related to unconsolidated investments.from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interest represents our partners’ share of net income relating to those partnerships where we are the controlling partner.
Seniors Housing Operating
The following is a summary of our NOI and SSNOI for the seniors housing operating segment (dollars Increases in thousands):
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2018 2017 $ % 2018 2017 $ %
NOI $239,505
 $218,978
 $20,527
 9 % $464,731
 $428,420
 $36,311
 8 %
Non SSNOI attributable to same store properties 311
 558
 (247) -44 % 623
 874
 (251) -29 %
NOI attributable to non same store properties(1)
 (29,819) (9,025) (20,794) 230 % (48,688) (17,755) (30,933) 174 %
SSNOI(2)
 $209,997
 $210,511
 $(514) — % $416,666
 $411,539
 $5,127
 1 %
(1) Change is primarily due to the acquisition of 25 properties subsequent to January 1, 2017 and the transition of 14 properties from triple-net to seniors housing operating.
(2) Relates to 395 same store properties.
The following is a summary of our seniors housing operating results of operations (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2018 2017 $ % 2018 2017 $ %
Revenues:                
Resident fees and services $763,345
 $677,040
 $86,305
 13 % $1,499,279
 $1,347,377
 $151,902
 11 %
Interest income 172
 —
 172
 n/a
 257
 69
 188
 272 %
Other income 1,650
 1,049
 601
 57 % 2,798
 2,510
 288
 11 %
Total revenues 765,167
 678,089
 87,078
 13 % 1,502,334
 1,349,956
 152,378
 11 %
Property operating expenses 525,662
 459,111
 66,551
 14 % 1,037,603
 921,536
 116,067
 13 %
NOI(1)
 239,505
 218,978
 20,527
 9 % 464,731
 428,420
 36,311
 8 %
Other expenses:        
        
Interest expense 16,971
 15,403
 1,568
 10 % 33,906
 31,219
 2,687
 9 %
Depreciation and amortization 134,779
 117,198
 17,581
 15 % 260,548
 236,935
 23,613
 10 %
Loss (gain) on extinguishment of debt, net 299
 2,524
 (2,225) -88 % 110
 3,414
 (3,304) -97 %
Impairment of assets 2,212
 8,785
 (6,573) -75 % 4,513
 14,191
 (9,678) -68 %
Other expenses 6,167
 1,165
 5,002
 429 % 5,979
 2,943
 3,036
 103 %
Total other expenses 160,428
 145,075
 15,353
 11 % 305,056
 288,702
 16,354
 6 %
Income (loss) from continuing operations
before income taxes and income (loss) from unconsolidated entities
 79,077
 73,903
 5,174
 7 % 159,675
 139,718
 19,957
 14 %
Income tax benefit (expense) (2,617) 10,247
 (12,864) n/a
 (2,455) 9,160
 (11,615) n/a
Income (loss) from unconsolidated entities (5,204) (8,449) 3,245
 -38 % (14,684) (37,640) 22,956
 -61 %
Income from continuing operations 71,256
 75,701
 (4,445) -6 % 142,536
 111,238
 31,298
 28 %
Gain (loss) on real estate dispositions, net (1) —
 (1) n/a
 4
 13,011
 (13,007) -100 %
Net income (loss) 71,255
 75,701
 (4,446) -6 % 142,540
 124,249
 18,291
 15 %
Less: Net income (loss) attributable to
noncontrolling interests
 (766) 781
 (1,547) n/a
 (1,664) 191
 (1,855) n/a
Net income (loss) attributable to
common stockholders
 $72,021
 $74,920
 $(2,899) -4 % $144,204
 $124,058
 $20,146
 16 %
                 
(1) See Non-GAAP Financial Measures.        
Fluctuations in revenues and property operating expenses are primarily a result of acquisitions and the movement of U.S. and foreign currency exchange rates. The fluctuations in depreciation and amortization are due to acquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.
During the six months ended June 30, 2018 and 2017, we recorded impairment charges on certain held for sale properties as the carrying value exceeded the estimated fair value less costs to sell.  Changes in the gain/loss on sale of properties are related to the volume of property sales and sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The increase in other expenses is primarily due to more noncapitalizable transactions costs from acquisitions.
During the six months ended June 30, 2018, we completed one seniors housing operating construction project representing $37,215,000 or $395,904 per unit. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of June 30, 2018 (dollars in thousands):
Location Units Commitment Balance Est. Completion
Bushey, UK 95
 $53,778
 $47,518
 3Q18
Wandsworth, UK 98
 77,796
 34,503
 1Q20
  193
 $131,574
 $82,021
  
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 seniors housing operating property secured debt principal activity (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

  Three Months Ended Six Months Ended
  June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017
    Wtd. Avg.   Wtd. Avg.   Wtd. Avg.   Wtd. Avg.
  Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $1,931,401
 3.679% $2,033,152
 3.663% $1,988,700
 3.661% $2,463,249
 3.936%
Debt issued 24,280
 3.057% 149,264
 2.519% 44,606
 3.384% 161,799
 2.331%
Debt assumed —
 0.000% —
 0.000% 85,192
 4.395% —
 0.000%
Principal payments (12,062) 3.569% (11,893) 3.530% (24,001) 3.559% (23,151) 3.606%
Debt extinguished (13,165) 3.567% (156,422) 4.084% (131,175) 4.853% (594,954) 4.990%
Foreign currency (21,039) 3.298% 26,884
 3.222% (53,907) 3.289% 34,042
 3.209%
Ending balance $1,909,415
 3.726% $2,040,985
 3.556% $1,909,415
 3.726% $2,040,985
 3.556%
                 
Monthly averages $1,922,640
 3.710% $1,997,433
 3.633% $1,932,618
 3.675% $2,086,474
 3.679%
     The majority of our seniors housing operating properties are formed through partnership interests.  Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures. The fluctuations in income (loss) from unconsolidated entitiesinterest is due primarily due to the recognitionProMedica joint venture formed as part of goodwill and intangible asset impairments as well as income tax expense adjustments during the six month period ended June 30, 2017.QCP acquisition.
Outpatient Medical
The following is a summary of our NOI and SSNOI for the outpatient medicalOutpatient Medical segment (dollars in thousands):
 Three Months Ended Change Six Months Ended Change Three Months Ended Change Six Months Ended Change
 June 30, June 30,     June 30, June 30,     June 30, June 30,     June 30, June 30,    
 2018 2017 $ % 2018 2017 $ % 2019 2018 $ % 2019 2018 $ %
NOI $92,874
 $96,183
 $(3,309) -3 % $185,042
 $188,903
 $(3,861) -2 % $112,378
 $92,874
 $19,504
 21.0 % $213,673
 $185,042
 $28,631
 15.5 %
Non SSNOI on same store properties (894) (2,315) 1,421
 -61 % (1,780) (4,143) 2,363
 -57 % (1,204) (1,397) 193
 13.8 % (2,767) (2,663) (104) -3.9 %
NOI attributable to non same store properties(1)
 (6,304) (12,965) 6,661
 -51 % (11,472) (23,311) 11,839
 -51 % (24,085) (5,102) (18,983) -372.1 % (36,379) (9,776) (26,603) -272.1 %
SSNOI(2)
 $85,676
 $80,903
 $4,773
 6 % $171,790
 $161,449
 $10,341
 6 % $87,089
 $86,375
 $714
 0.8 % $174,527
 $172,603
 $1,924
 1.1 %
                
(1) Change is primarily due to acquisitions of 15102 properties and the conversion of 1112 construction projects into revenue-generating properties subsequent to
January 1, 2017.2018.
(2) Relates to 219227 same store properties.

39
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 outpatient medicalOutpatient Medical segment (dollars in thousands):
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2019 2018 $ % 2019 2018 $ %
Revenues:                
Rental income $163,224
 $135,640
 $27,584
 20 % $312,276
 $272,178
 $40,098
 15 %
Interest income 238
 43
 195
 453 % 411
 55
 356
 647 %
Other income (97) 144
 (241) -167 % 139
 265
 (126) -48 %
Total revenues 163,365
 135,827
 27,538
 20 % 312,826
 272,498
 40,328
 15 %
Property operating expenses 50,987
 42,953
 8,034
 19 % 99,153
 87,456
 11,697
 13 %
NOI(1)
 112,378
 92,874
 19,504
 21 % 213,673
 185,042
 28,631
 15 %
Other expenses:      
  
        
Depreciation and amortization 55,445
 46,187
 9,258
 20 % 106,454
 92,587
 13,867
 15 %
Interest expense 3,386
 1,656
 1,730
 104 % 6,734
 3,332
 3,402
 102 %
Loss (gain) on extinguishment of debt, net —
 —
 —
 n/a
 —
 11,928
 (11,928) -100 %
Impairment of assets 10,879
 —
 10,879
 n/a
 10,879
 —
 10,879
 n/a
Other expenses (4) 2,095
 (2,099) -100 % 750
 2,693
 (1,943) -72 %
  69,706
 49,938
 19,768
 40 % 124,817
 110,540
 14,277
 13 %
Income (loss) from continuing operations
before income taxes and other items

 42,672
 42,936
 (264) -1 % 88,856
 74,502
 14,354
 19 %
Income tax (expense) benefit (586) (378) (208) -55 % (951) (806) (145) -18 %
Income from unconsolidated entities 1,826
 1,391
 435
 31 % 3,549
 2,621
 928
 35 %
Gain (loss) on real estate dispositions, net (2) (3) 1
 33 % (7) 214,779
 (214,786) -100 %
Income from continuing operations 43,910
 43,946
 (36) — % 91,447
 291,096
 (199,649) -69 %
Net income (loss) 43,910
 43,946
 (36) — % 91,447
 291,096
 (199,649) -69 %
Less: Net income (loss) attributable to
noncontrolling interests
 812
 678
 134
 20 % 1,807
 3,821
 (2,014) -53 %
Net income (loss) attributable to
common stockholders
 $43,098
 $43,268
 $(170) — % $89,640
 $287,275
 $(197,635) -69 %
                 
(1) See Non-GAAP Financial Measures.
        

  Three Months Ended Change Six Months Ended Change
  June 30, June 30,     June 30, June 30,    
  2018 2017 $ % 2018 2017 $ %
Revenues:                
Rental income $135,640
 $137,710
 $(2,070) -2 % $272,178
 $277,561
 $(5,383) -2 %
Interest income 43
 —
 43
 n/a
 55
 —
 55
 n/a
Other income 144
 1,217
 (1,073) -88 % 265
 1,830
 (1,565) -86 %
Total revenues 135,827
 138,927
 (3,100) -2 % 272,498
 279,391
 (6,893) -2 %
Property operating expenses 42,953
 42,744
 209
 — % 87,456
 90,488
 (3,032) -3 %
NOI(1)
 92,874
 96,183
 (3,309) -3 % 185,042
 188,903
 (3,861) -2 %
Other expenses:      
  
        
Interest expense 1,656
 2,122
 (466) -22 % 3,332
 4,413
 (1,081) -24 %
Depreciation and amortization 46,187
 47,478
 (1,291) -3 % 92,587
 96,408
 (3,821) -4 %
Impairment of assets —
 —
 —
 n/a
 —
 5,625
 (5,625) -100 %
Loss (gain) on extinguishment of debt, net —
 2,991
 (2,991) -100 % 11,928
 4,373
 7,555
 173 %
Other expenses 2,095
 1,310
 785
 60 % 2,693
 1,671
 1,022
 61 %
Total other expenses 49,938
 53,901
 (3,963) -7 % 110,540
 112,490
 (1,950) -2 %
                 
Income (loss) from continuing operations
before income taxes and income (loss) from unconsolidated entities

 42,936
 42,282
 654
 2 % 74,502
 76,413
 (1,911) -3 %
Income tax (expense) benefit (378) (351) (27) 8 % (806) (686) (120) 17 %
Income from unconsolidated entities 1,391
 604
 787
 130 % 2,621
 1,051
 1,570
 149 %
Income from continuing operations 43,949
 42,535
 1,414
 3 % 76,317
 76,778
 (461) -1 %
Gain (loss) on real estate dispositions, net (3) —
 (3) n/a
 214,779
 —
 214,779
 n/a
Net income (loss) 43,946
 42,535
 1,411
 3 % 291,096
 76,778
 214,318
 279 %
Less: Net income (loss) attributable to
noncontrolling interests
 678
 1,582
 (904) -57 % 3,821
 2,392
 1,429
 60 %
Net income (loss) attributable to
common stockholders
 $43,268
 $40,953
 $2,315
 6��% $287,275
 $74,386
 $212,889
 286 %
                 
(1) See Non-GAAP Financial Measures.        
The decreaseincrease in rental income is primarily attributable to dispositionsacquisitions and development conversions, partially offset by the acquisitionsdispositions of new properties and the conversion of newly constructed outpatient medical properties from which we receive rent.properties. 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. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months ended June 30, 2018,2019, our consolidated outpatient medical portfolio signed 94,252138,399 square feet of new leases and 198,461332,299 square feet of renewals. The weighted-average term of these leases was sixseven years, with a rate of $38.12$36.64 per square foot and tenant improvement and lease commission costs of $20.48$21.40 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 0%1.5% to 4%3.9%.  
The fluctuation in property operating expenses is primarily attributable to dispositions partially offset by acquisitions and construction conversions of new outpatient medical facilities, for which we incur certain property operating expenses. partially offset by dispositions.The fluctuationsfluctuation in depreciation and amortization areis primarily due to dispositionsacquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During the six months ended June 30, 2017, we recorded impairment charges related to certain held for sale properties as the carrying values exceeded the estimated fair values less costs to sell. Changes in the gain/loss on sale of properties are related to the volume and timing of property sales and sales prices. 
During the sixthree months ended June 30, 2018,2019 we completed onerecorded an impairment charge on certain held for sale outpatient medical construction project representing $11,358,000 or $294 per square foot. The following is a summary ofproperties as the outpatient medical construction projects, excluding expansions, pending as of June 30, 2018 (dollars in thousands):carrying values exceeded the estimated fair value less costs to sell.







40
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as of June 30, 2019 (dollars in thousands):
Location Square Feet Commitment Balance Est. Completion
Brooklyn, NY 140,955
 $105,177
 $52,438
 3Q19
Location Square Feet Commitment Balance Est. Completion
Lowell, MA 50,668
 $8,300
 $3,599
 4Q19
Houston, TX 73,500
 23,455
 12,230
 4Q19
Brooklyn, NY 140,955
 105,306
 72,435
 1Q20
Porter, TX 55,000
 20,800
 8,737
 1Q20
Katy, TX 36,500
 12,028
 170
 2Q20
Total 356,623
 $169,889
 $97,171
  
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 fluctuation in losses/gains on debt extinguishment is primarily attributable to the prepayment penalties paid on certain extinguishments in the first quarter of 2018. 

The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands):
 Three Months Ended Six Months Ended Three Months Ended Six Months Ended
 June 30, 2018 June 30, 2017 June 30, 2018 June 30, 2017 June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018
   Wtd. Ave   Wtd. Ave   Wtd. Ave   Wtd. Ave   Wtd. Ave   Wtd. Ave   Wtd. Ave   Wtd. Ave
 Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $217,697
 4.141% $289,824
 4.509% $279,951
 4.720% $404,079
 4.846% $385,357
 4.25% $217,697
 4.14% $386,738
 4.20% $279,951
 4.72%
Debt assumed —
 0.000% 23,094
 6.670% —
 0.000% 23,094
 6.670%
Debt extinguished —
 —% —
 —% —
 —% (61,291) 7.43%
Principal payments (690) 5.897% (2,688) 7.076% (1,653) 6.076% (4,839) 6.816% (1,507) 5.02% (690) 5.90% (2,888) 5.06% (1,653) 6.08%
Debt extinguished —
 0.000% (25,312) 6.439% (61,291) 7.431% (137,416) 5.990%
Ending balance $217,007
 4.348% $284,918
 4.617% $217,007
 4.348% $284,918
 4.617% $383,850
 4.22% $217,007
 4.35% $383,850
 4.22% $217,007
 4.35%
                                
Monthly averages $217,352
 4.270% $275,048
 4.490% $226,493
 4.298% $305,530
 4.572% $384,603
 4.24% $217,352
 4.27% $386,088
 4.24% $226,493
 4.30%
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 related to certain unconsolidated property investments.from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners’ share of net income 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/corporateNon-Segment/Corporate activities (dollars in thousands):
 Three Months Ended Change Six Months Ended Change Three Months Ended Change Six Months Ended Change
 June 30, June 30,     June 30, June 30,     June 30, June 30,     June 30, June 30,    
 2018 2017 $ % 2018 2017 $ % 2019 2018 $ % 2019 2018 $ %
Revenues:                                
Other income $498
 $239
 $259
 108 % $866
 $472
 $394
 83 % $454
 $498
 $(44) -9 % $2,611
 $866
 $1,745
 202 %
Total revenue 454
 498
 (44) -9 % 2,611
 866
 1,745
 202 %
Expenses:        
        
        
        
Interest expense 98,989
 96,191
 2,798
 3 % 199,711
 191,170
 8,541
 4 % 117,153
 98,989
 18,164
 18 % 237,346
 199,711
 37,635
 19 %
General and administrative 32,831
 32,632
 199
 1 % 66,536
 63,733
 2,803
 4 %
General and administrative expenses 33,741
 32,831
 910
 3 % 69,023
 66,536
 2,487
 4 %
Loss (gain) on extinguishment of debt, net —
 —
 —
 n/a
 15,719
 —
 15,719
 n/a
Other expenses 839
 1,683
 (844) -50 % 3,021
 6,210
 (3,189) -51 % 4,215
 839
 3,376
 402 % 6,242
 3,021
 3,221
 107 %
Total expenses 132,659
 130,506
 2,153
 2 % 269,268
 261,113
 8,155
 3 %
Loss from continuing operations before
income taxes
 (132,161) (130,267) (1,894) 1 % (268,402) (260,641) (7,761) 3 %
 155,109
 132,659
 22,450
 17 % 328,330
 269,268
 59,062
 22 %
Loss from continuing operations before
income taxes and other items
 (154,655) (132,161) (22,494) -17 % (325,719) (268,402) (57,317) -21 %
Income tax (expense) benefit (158) 23
 (181) n/a
 (344) —
 (344) n/a
 (27) (158) 131
 83 % (314) (344) 30
 9 %
Loss from continuing operations (132,319) (130,244) (2,075) 2 % (268,746) (260,641) (8,105) 3 % (154,682) (132,319) (22,363) -17 % (326,033) (268,746) (57,287) -21 %
Less: Preferred stock dividends 11,676
 11,680
 (4) — % 23,352
 26,059
 (2,707) -10 % —
 11,676
 (11,676) -100 % —
 23,352
 (23,352) -100 %
Less: Preferred stock redemption charge —
 —
 —
 n/a
 —
 9,769
 (9,769) -100 %
Net loss attributable to common stockholders $(143,995) $(141,924) $(2,071) 1 % $(292,098) $(296,469) $4,371
 -1 % $(154,682) $(143,995) $(10,687) -7 % $(326,033) $(292,098) $(33,935) -12 %
The following is a summary of our non-segment/corporate interest expense (dollars in thousands):


41
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


The following is a summary of our Non-Segment/Corporate interest expense (dollars in thousands):
 Three Month Ended Change Six Months Ended Change Three Months Ended Change Six Months Ended Change
 June 30, June 30,     June 30, June 30,     June 30, June 30,     June 30, June 30,    
 2018 2017 $ % 2018 2017 $ % 2019 2018 $ % 2019 2018 $ %
Senior unsecured notes $89,986
 $88,556
 $1,430
 2 % $183,399
 $175,147
 $8,252
 5 % $98,475
 $89,986
 $8,489
 9 % $207,231
 $183,399
 $23,832
 13 %
Secured debt 32
 55
 (23) -42 % 70
 115
 (45) -39 % —
 32
 (32) -100 % —
 70
 (70) -100 %
Primary unsecured credit facility 5,768
 4,236
 1,532
 36 % 9,782
 9,273
 509
 5 %
Unsecured revolving credit facility and commercial paper note program 15,160
 5,768
 9,392
 163 % 22,678
 9,782
 12,896
 132 %
Loan expense 3,203
 3,344
 (141) -4 % 6,460
 6,635
 (175) -3 % 3,518
 3,203
 315
 10 % 7,437
 6,460
 977
 15 %
Totals $98,989
 $96,191
 $2,798
 3 % $199,711
 $191,170
 $8,541
 4 % $117,153
 $98,989
 $18,164
 18 % $237,346
 $199,711
 $37,635
 19 %
The change in interest expense on senior unsecured notes is primarily due to the net effect of issuances and extinguishments, as well as the movement of foreign exchange rates and related hedge activity. Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. Loan expense changes are duePlease refer to amortization of chargesNote 11 for costs incurred in connection with senior unsecured note issuances.additional information. The change in interest expense on the primary 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 910 of our unaudited consolidated financial statements for additional information regarding our primary unsecured revolving credit facility. facility and Commercial Paper Program. The loss on extinguishment recognized during the six months ended June 30, 2019 is due to the early extinguishment of the $600,000,000 of 4.125% senior unsecured notes due 2019 and the $450,000,000 of 6.125% senior unsecured notes due 2020.
General and administrative expenses as a percentage of consolidated revenues for the three months ended June 30, 2019 and 2018 were 2.56% and 2017 were 2.92% and 3.08%, respectively. Other expenses primarily represent severance-related costs associated with the departure of certainan executive officersofficer and other key employees.
The decrease in preferred dividends is due to the conversion of all outstanding Series I Cumulative Convertible Perpetual Preferred Stock during the six months ended June 30, 2019.
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 seniors housing operating and medical facility 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 underusing a consistent population which eliminatescontrols for changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the reporting period subsequent to January 1, 2017.2018. Land parcels, loans, and sub-leases as well as any properties acquired, developed/redeveloped, transitioned, sold or classified as held for sale during that period are excluded from the same store amounts. 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.


42
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

EBITDA stands for earnings (net income) before interest, taxes, depreciation and amortization. We believe that EBITDA, along with net income and cash flow provided from operating activities, is an important supplemental measure because it provides additional information to assess and evaluate the performance of our operations. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends. Covenants in our senior unsecured notes contain financial ratios based on a definition of EBITDA that is specific to those agreements. Failure to satisfy these covenants could result in an event of default that could have a material adverse impact on our cost and
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these debt agreements and the financial covenants, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above excluding unconsolidated entities and adjusted for items per our covenant. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge coverage ratio of at least 1.50 times.
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.


























  Three Months Ended
  March 31, June 30, September 30, December 31, March 31, June 30,
NOI Reconciliations: 2018 2018 2018 2018 2019 2019
Net income (loss) $453,555
 $167,273
 $84,226
 $124,696
 $292,302
 $150,040
Loss (gain) on real estate dispositions, net (338,184) (10,755) (24,723) (41,913) (167,409) 1,682
Loss (income) from unconsolidated entities 2,429
 (1,249) (344) (195) 9,199
 9,049
Income tax expense (benefit) 1,588
 3,841
 1,741
 1,504
 2,222
 1,599
Other expenses 3,712
 10,058
 88,626
 10,502
 8,756
 21,628
Impairment of assets 28,185
 4,632
 6,740
 76,022
 —
 9,939
Provision for loan losses —
 —
 —
 —
 18,690
 —
Loss (gain) on extinguishment of debt, net 11,707
 299
 4,038
 53
 15,719
 —
Loss (gain) on derivatives and financial instruments, net (7,173) (7,460) 8,991
 1,626
 (2,487) 1,913
General and administrative expenses 33,705
 32,831
 28,746
 31,101
 35,282
 33,741
Depreciation and amortization 228,201
 236,275
 243,149
 242,834
 243,932
 248,052
Interest expense 122,775
 121,416
 138,032
 144,369
 145,232
 141,336
Consolidated net operating income (NOI) $540,500
 $557,161
 $579,222
 $590,599
 $601,438
 $618,979
             
NOI by segment:  
  
  
  
  
  
Seniors Housing Operating $225,226
 $239,505
 $265,846
 $254,445
 $264,700
 $278,212
Triple-net 222,738
 224,284
 218,684
 234,343
 233,286
 227,935
Outpatient Medical 92,168
 92,874
 93,997
 101,097
 101,295
 112,378
Non-segment/corporate 368
 498
 695
 714
 2,157
 454
Total NOI $540,500
 $557,161
 $579,222
 $590,599
 $601,438
 $618,979


43
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following tables reflect the reconciliations of NOI and SSNOI to net income, the most directly comparable U.S. GAAP measure, for the periods presented.  Dollars are in thousands.
  Three Months Ended
  March 31, June 30, September 30, December 31, March 31, June 30,
NOI Reconciliations: 2017 2017 2017 2017 2018 2018
Net income (loss) $337,610
 $203,441
 $89,299
 $(89,743) $453,555
 $167,273
Loss (gain) on real estate dispositions, net (244,092) (42,155) (1,622) (56,381) (338,184) (10,755)
Loss (income) from unconsolidated entities 23,106
 3,978
 (3,408) 59,449
 2,429
 (1,249)
Income tax expense (benefit) 2,245
 (8,448) 669
 25,663
 1,588
 3,841
Other expenses 11,675
 6,339
 99,595
 60,167
 3,712
 10,058
Impairment of assets 11,031
 13,631
 —
 99,821
 28,185
 4,632
Provision for loan losses —
 —
 —
 62,966
 —
 —
Loss (gain) on extinguishment of debt, net 31,356
 5,515
 —
 371
 11,707
 299
Loss (gain) on derivatives and financial instruments, net 1,224
 736
 324
 —
 (7,173) (7,460)
General and administrative expenses 31,101
 32,632
 29,913
 28,365
 33,705
 32,831
Depreciation and amortization 228,276
 224,847
 230,138
 238,458
 228,201
 236,275
Interest expense 118,597
 116,231
 122,578
 127,217
 122,775
 121,416
Consolidated net operating income (NOI) $552,129
 $556,747
 $567,486
 $556,353
 $540,500
 $557,161
             
NOI by segment:  
  
  
  
  
  
Triple-net $249,735
 $241,347
 $244,916
 $231,083
 $222,738
 $224,284
Seniors housing operating 209,442
 218,978
 225,100
 226,509
 225,226
 239,505
Outpatient medical 92,719
 96,183
 96,772
 98,393
 92,168
 92,874
Non-segment/corporate 233
 239
 698
 368
 368
 498
Total NOI $552,129
 $556,747
 $567,486
 $556,353
 $540,500
 $557,161
    Three Months Ended
    March 31, June 30, September 30, December 31, March 31, June 30,
SSNOI Reconciliations:   2018 2018 2018 2018 2019 2019
NOI:              
Seniors Housing Operating   $225,226
 $239,505
 $265,846
 $254,445
 $264,700
 $278,212
Triple-net   222,738
 224,284
 218,684
 234,343
 233,286
 227,935
Outpatient Medical   92,168
 92,874
 93,997
 101,097
 101,295
 112,378
Total   540,132
 556,663
 578,527
 589,885
 599,281
 618,525
Adjustments:      
  
  
  
  
Seniors Housing Operating:      
  
  
  
  
Non SSNOI on same store properties 269
 358
 211
 337
 1,915
 1,384
NOI attributable to non same store properties (34,665) (45,907) (73,739) (65,131) (70,224) (88,898)
Subtotal   (34,396) (45,549) (73,528) (64,794) (68,309) (87,514)
Triple-net:      
  
  
  
  
Non SSNOI on same store properties (10,728) (4,068) (5,445) (6,384) (7,593) (8,114)
NOI attributable to non same store properties (81,455) (83,148) (79,874) (96,535) (92,840) (87,819)
Subtotal   (92,183) (87,216) (85,319) (102,919) (100,433) (95,933)
Outpatient Medical:      
  
  
  
  
Non SSNOI on same store properties (1,266) (1,397) (1,635) (5,706) (1,563) (1,204)
NOI attributable to non same store properties (4,674) (5,102) (5,776) (7,779) (12,294) (24,085)
Subtotal   (5,940) (6,499) (7,411) (13,485) (13,857) (25,289)
SSNOI: Properties    
  
  
  
  
Seniors Housing Operating 365
 190,830
 193,956
 192,318
 189,651
 196,391
 190,698
Triple-net 388
 130,555
 137,068
 133,365
 131,424
 132,853
 132,002
Outpatient Medical 227
 86,228
 86,375
 86,586
 87,612
 87,438
 87,089
Total 980
 $407,613
 $417,399
 $412,269
 $408,687
 $416,682
 $409,789
SSNOI Property Reconciliation:            
Total properties 1,598
            
Acquisitions (402)     
      
Developments (30)            
Held for sale (89)            
Transitions/restructurings (87)            
Other(1)
 (10)            
Same store properties 980
            
               
(1) Includes nine land parcels and one loan.
          


44
  Six Months Ended
  June 30, June 30,
  2017 2018
NOI Reconciliations: 
  
Net income (loss) $541,052
 $620,828
Loss (gain) on real estate dispositions, net (286,247) (348,939)
Loss (income) from unconsolidated entities 27,084
 1,180
Income tax expense (benefit) (6,203) 5,429
Other expenses 18,014
 13,770
Impairment of assets 24,662
 32,817
Loss (gain) on extinguishment of debt, net 36,870
 12,006
Loss (gain) on derivatives and financial instruments, net 1,960
 (14,633)
General and administrative expenses 63,733
 66,536
Depreciation and amortization 453,124
 464,476
Interest expense 234,827
 244,191
Consolidated net operating income (NOI) $1,108,876
 $1,097,661
     
NOI by segment:    
Triple-net $491,081
 $447,022
Seniors housing operating 428,420
 464,731
Outpatient medical 188,903
 185,042
Non-segment/corporate 472
 866
Total NOI $1,108,876
 $1,097,661

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



    Three Months Ended
    March 31, June 30, September 30, December 31, March 31, June 30,
SSNOI Reconciliations:   2017 2017 2017 2017 2018 2018
NOI:              
Triple-net   $249,735
 $241,347
 $244,916
 $231,083
 $222,738
 $224,284
Seniors housing operating   209,442
 218,978
 225,100
 226,509
 225,226
 239,505
Outpatient medical   92,719
 96,183
 96,772
 98,393
 92,168
 92,874
Total   551,896
 556,508
 566,788
 555,985
 540,132
 556,663
Adjustments:              
Triple-net:              
Non SSNOI on same store properties (9,399) (8,557) (8,366) (7,733) (8,875) (3,446)
NOI attributable to non same store properties (73,547) (64,203) (65,771) (53,766) (46,771) (38,523)
Subtotal   (82,946) (72,760) (74,137) (61,499) (55,646) (41,969)
Seniors housing operating:              
Non SSNOI on same store properties 316
 558
 288
 424
 312
 311
NOI attributable to non same store properties (8,730) (9,025) (10,810) (16,245) (18,869) (29,819)
Subtotal   (8,414) (8,467) (10,522) (15,821) (18,557) (29,508)
Outpatient medical:              
Non SSNOI on same store properties (1,828) (2,315) (1,451) (1,743) (886) (894)
NOI attributable to non same store properties (10,346) (12,965) (13,997) (14,564) (5,168) (6,304)
Subtotal   (12,174) (15,280) (15,448) (16,307) (6,054) (7,198)
SSNOI: Properties            
Triple-net 463
 166,789
 168,587
 170,779
 169,584
 167,092
 182,315
Seniors housing operating 395
 201,028
 210,511
 214,578
 210,688
 206,669
 209,997
Outpatient medical 219
 80,545
 80,903
 81,324
 82,086
 86,114
 85,676
Total 1,077
 $448,362

$460,001

$466,681

$462,358

$459,875

$477,988
SSNOI Property Reconciliation:              
Total properties 1,257
            
Acquisitions (57)            
Developments (30)            
Held for sale (55)            
Transitions/restructurings (29)            
Other(1)
 (9)            
Same store properties 1,077
            
               
(1) Includes eight land parcels and one loan.          
  Six Months Ended
  June 30, June 30,
  2018 2019
NOI Reconciliations:    
Net income (loss) $620,828
 $442,342
Loss (gain) on real estate dispositions, net (348,939) (165,727)
Loss (income) from unconsolidated entities 1,180
 18,248
Income tax expense (benefit) 5,429
 3,821
Other expenses 13,770
 30,384
Impairment of assets 32,817
 9,939
Provision for loan losses —
 18,690
Loss (gain) on extinguishment of debt, net 12,006
 15,719
Loss (gain) on derivatives and financial instruments, net (14,633) (574)
General and administrative expenses 66,536
 69,023
Depreciation and amortization 464,476
 491,984
Interest expense 244,191
 286,568
Consolidated net operating income (NOI) $1,097,661
 $1,220,417
     
NOI by segment:    
Seniors Housing Operating $464,731
 $542,912
Triple-net 447,022
 461,221
Outpatient Medical 185,042
 213,673
Non-segment/corporate 866
 2,611
Total NOI $1,097,661
 $1,220,417

   Six Months Ended   Six Months Ended
   June 30, June 30,   June 30, June 30,
SSNOI Reconciliations:   2017 2018   2018 2019
NOI:            
Seniors Housing Operating   $464,731
 $542,912
Triple-net   $491,081
 $447,022
   447,022
 461,221
Seniors housing operating   428,420
 464,731
Outpatient medical   188,903
 185,042
Outpatient Medical   185,042
 213,673
Total   1,108,404
 1,096,795
   1,096,795
 1,217,806
Adjustments:            
Seniors Housing Operating:      
Non SSNOI on same store propertiesNon SSNOI on same store properties 627
 3,299
NOI attributable to non same store propertiesNOI attributable to non same store properties (80,572) (159,122)
Subtotal   (79,945) (155,823)
Triple-net:            
Non SSNOI on same store propertiesNon SSNOI on same store properties (17,956) (12,321)Non SSNOI on same store properties (14,796) (15,707)
NOI attributable to non same store propertiesNOI attributable to non same store properties (137,750) (85,294)NOI attributable to non same store properties (164,603) (180,659)
Subtotal   (155,706) (97,615)   (179,399) (196,366)
Seniors housing operating:      
Non SSNOI on same store properties 874
 623
NOI attributable to non same store properties (17,755) (48,688)
Subtotal   (16,881) (48,065)
Outpatient medical:      
Outpatient Medical:      
Non SSNOI on same store propertiesNon SSNOI on same store properties (4,143) (1,780)Non SSNOI on same store properties (2,663) (2,767)
NOI attributable to non same store propertiesNOI attributable to non same store properties (23,311) (11,472)NOI attributable to non same store properties (9,776) (36,379)
Subtotal   (27,454) (13,252)   (12,439) (39,146)
SSNOI: Properties     Properties    
Seniors Housing Operating 365
 384,786
 387,089
Triple-net 463
 335,375
 349,407
 388
 267,623
 264,855
Seniors housing operating 395
 411,539
 416,666
Outpatient medical 219
 161,449
 171,790
Outpatient Medical 227
 172,603
 174,527
Total 1,077
 $908,363
 $937,863
 980
 $825,012
 $826,471



45
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. Amounts are in thousands except for per share data.
Three Months EndedThree Months Ended
 March 31, June 30, September 30, December 31, March 31, June 30, March 31, June 30, September 30, December 31, March 31, June 30,
FFO Reconciliations: 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 2019 2019
NICS $312,639
 $188,429
 $74,043
 $(111,523) $437,671
 $154,432
Net income attributable to common stockholders $437,671
 $154,432
 $64,384
 $101,763
 $280,470
 $137,762
Depreciation and amortization 228,276
 224,847
 230,138
 238,458
 228,201
 236,275
 228,201
 236,275
 243,149
 242,834
 243,932
 248,052
Impairment of assets 11,031
 13,631
 —
 99,821
 28,185
 4,632
 28,185
 4,632
 6,740
 76,022
 —
 9,939
Loss (gain) on real estate dispositions, net (244,092) (42,155) (1,622) (56,381) (338,184) (10,755) (338,184) (10,755) (24,723) (41,913) (167,409) 1,682
Noncontrolling interests (18,107) (16,955) (16,826) (8,131) (16,353) (17,692) (16,353) (17,692) (17,498) (17,650) (17,760) (18,889)
Unconsolidated entities 16,484
 16,593
 9,989
 16,980
 13,700
 11,833
 13,700
 11,833
 13,220
 13,910
 19,150
 11,475
FFO $306,231
 $384,390
 $295,722
 $179,224
 $353,220
 $378,725
 $353,220
 $378,725
 $285,272
 $374,966
 $358,383
 $390,021
                        
Average common shares outstanding:                        
Basic 362,534
 366,524
 369,089
 370,485
 371,426
 371,640
 371,426
 371,640
 373,023
 378,240
 391,474
 404,607
Diluted for NICS purposes 364,652
 368,149
 370,740
 370,485
 373,257
 373,075
Diluted for FFO purposes 364,652
 368,149
 370,740
 372,145
 373,257
 373,075
Diluted 373,257
 373,075
 374,487
 380,002
 393,452
 406,673
                        
Per share data:                        
NICS            
Net income attributable to common stockholders:            
Basic $0.86
 $0.51
 $0.20
 $(0.30) $1.18
 $0.42
 $1.18
 $0.42
 $0.17
 $0.27
 $0.72
 $0.34
Diluted 0.86
 0.51
 0.20
 (0.30) 1.17
 0.41
 1.17
 0.41
 0.17
 0.27
 0.71
 0.34
                        
FFO                        
Basic $0.84
 $1.05
 $0.80
 $0.48
 $0.95
 $1.02
 $0.95
 $1.02
 $0.76
 $0.99
 $0.92
 $0.96
Diluted 0.84
 1.04
 0.80
 0.48
 0.95
 1.02
 0.95
 1.02
 0.76
 0.99
 0.91
 0.96

 Six months ended Six Months Ended
 June 30, June 30, June 30, June 30,
FFO Reconciliations: 2017 2018 2018 2019
NICS $501,068
 $592,103
 $592,103
 $418,232
Depreciation and amortization 453,124
 464,476
 464,476
 491,984
Impairment of assets 24,662
 32,817
 32,817
 9,939
Loss (gain) on real estate dispositions, net (286,247) (348,939) (348,939) (165,727)
Noncontrolling interests (35,061) (34,045) (34,045) (36,649)
Unconsolidated entities 33,077
 25,533
 25,533
 30,625
FFO $690,623
 $731,945
 $731,945
 $748,404
        
Average common shares outstanding:        
Basic 364,551
 371,552
 371,552
 398,073
Diluted 366,423
 373,186
 373,186
 400,096
        
Per share data:        
NICS        
Basic $1.37
 $1.59
 $1.59
 $1.05
Diluted 1.37
 1.59
 1.59
 1.05
        
FFO        
Basic $1.89
 $1.97
 $1.97
 $1.88
Diluted 1.88
 1.96
 1.96
 1.87




46
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations



The table 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
  March 31, June 30, September 30, December 31, March 31, June 30,
EBITDA Reconciliations: 2017 2017 2017 2017 2018 2018
Net income (loss) $337,610
 $203,441
 $89,299
 $(89,743) $453,555
 $167,273
Interest expense 118,597
 116,231
 122,578
 127,217
 122,775
 121,416
Income tax expense (benefit) 2,245
 (8,448) 669
 25,663
 1,588
 3,841
Depreciation and amortization 228,276
 224,847
 230,138
 238,458
 228,201
 236,275
EBITDA $686,728
 $536,071
 $442,684
 $301,595
 $806,119
 $528,805
             
Interest Coverage Ratio:            
Interest expense $118,597
 $116,231
 $122,578
 $127,217
 $122,775
 $121,416
Non-cash interest expense (1,679) (2,946) (3,199) (2,534) (4,179) (1,716)
Capitalized interest 4,129
 3,358
 2,545
 3,456
 2,336
 2,100
Total interest 121,047
 116,643
 121,924
 128,139
 120,932
 121,800
EBITDA $686,728
 $536,071
 $442,684
 $301,595
 $806,119
 $528,805
Interest coverage ratio 5.67x 4.60x 3.63x 2.35x 6.67x 4.34x
             
Fixed Charge Coverage Ratio:            
Total interest $121,047
 $116,643
 $121,924
 $128,139
 $120,932
 $121,800
Secured debt principal payments 16,249
 15,958
 15,300
 16,572
 14,247
 14,139
Preferred dividends 14,379
 11,680
 11,676
 11,676
 11,676
 11,676
Total fixed charges 151,675
 144,281
 148,900
 156,387
 146,855
 147,615
EBITDA $686,728
 $536,071
 $442,684
 $301,595
 $806,119
 $528,805
Fixed charge coverage ratio 4.53x 3.72x 2.97x 1.93x 5.49x 3.58x
  Three Months Ended
  March 31, June 30, September 30, December 31, March 31, June 30,
EBITDA Reconciliations: 2018 2018 2018 2018 2019 2019
Net income (loss) $453,555
 $167,273
 $84,226
 $124,696
 $292,302
 $150,040
Interest expense 122,775
 121,416
 138,032
 144,369
 145,232
 141,336
Income tax expense (benefit) 1,588
 3,841
 1,741
 1,504
 2,222
 1,599
Depreciation and amortization 228,201
 236,275
 243,149
 242,834
 243,932
 248,052
EBITDA $806,119
 $528,805
 $467,148
 $513,403
 $683,688
 $541,027
             
Interest Coverage Ratio:            
Interest expense $122,775
 $121,416
 $138,032
 $144,369
 $145,232
 $141,336
Non-cash interest expense (4,179) (1,716) (1,658) (3,307) (5,171) (752)
Capitalized interest 2,336
 2,100
 1,921
 1,548
 2,327
 3,929
Total interest 120,932
 121,800
 138,295
 142,610
 142,388
 144,513
EBITDA $806,119
 $528,805
 $467,148
 $513,403
 $683,688
 $541,027
Interest coverage ratio 6.67x 4.34x 3.38x 3.60x 4.80x 3.74x
             
Fixed Charge Coverage Ratio:            
Total interest $120,932
 $121,800
 $138,295
 $142,610
 $142,388
 $144,513
Secured debt principal payments 14,247
 14,139
 13,908
 13,994
 13,543
 13,684
Preferred dividends 11,676
 11,676
 11,676
 11,676
 —
 —
Total fixed charges 146,855
 147,615
 163,879
 168,280
 155,931
 158,197
EBITDA $806,119
 $528,805
 $467,148
 $513,403
 $683,688
 $541,027
Fixed charge coverage ratio 5.49x 3.58x 2.85x 3.05x 4.38x 3.42x


 Six Months Ended Six Months Ended
 June 30, June 30, June 30, June 30,
EBITDA Reconciliations: 2017 2018 2018 2019
Net income (loss) $541,052
 $620,828
 $620,828
 $442,342
Interest expense 234,827
 244,191
 244,191
 286,568
Income tax expense (benefit) (6,203) 5,429
 5,429
 3,821
Depreciation and amortization 453,124
 464,476
 464,476
 491,984
EBITDA $1,222,800
 $1,334,924
 $1,334,924
 $1,224,715
        
Interest Coverage Ratio:        
Interest expense $234,827
 $244,191
 $244,191
 $286,568
Non-cash interest expense (4,626) (5,895) (5,895) (5,923)
Capitalized interest 7,488
 4,436
 4,436
 6,256
Total interest 237,689
 242,732
 242,732
 286,901
EBITDA $1,222,800
 $1,334,924
 $1,334,924
 $1,224,715
Interest coverage ratio 5.14x 5.50x 5.50x 4.27x
        
Fixed Charge Coverage Ratio:        
Total interest $237,689
 $242,732
 $242,732
 $286,901
Secured debt principal payments 32,206
 28,385
 28,385
 27,227
Preferred dividends 26,059
 23,352
 23,352
 —
Total fixed charges 295,954
 294,469
 294,469
 314,128
EBITDA $1,222,800
 $1,334,924
 $1,334,924
 $1,224,715
Fixed charge coverage ratio 4.13x 4.53x 4.53x 3.90x




47
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 Month Ended   Twelve Months Ended
Adjusted EBITDA March 31, June 30, September 30, December 31, March 31, June 30,
Reconciliations: 2017 2017 2017 2017 2018 2018
 March 31, June 30, September 30, December 31, March 31, June 30,
Adjusted EBITDA Reconciliations: 2018 2018 2018 2018 2019 2019
Net income $1,254,208
 $1,246,899
 $981,458
 $540,613
 $656,551
 $620,384
 $656,551
 $620,384
 $615,311
 $829,750
 $668,497
 $651,264
Interest expense 506,982
 490,886
 483,765
 484,622
 488,800
 493,986
 488,800
 493,986
 509,440
 526,592
 549,049
 568,969
Income tax expense (benefit) (15,158) (23,093) (22,119) 20,128
 19,471
 31,761
 19,471
 31,761
 32,833
 8,674
 9,308
 7,066
Depreciation and amortization 900,822
 899,100
 911,180
 921,720
 921,645
 933,072
 921,645
 933,072
 946,083
 950,459
 966,190
 977,967
EBITDA 2,646,854
 2,613,792
 2,354,284
 1,967,083
 2,086,467
 2,079,203
 2,086,467
 2,079,203
 2,103,667
 2,315,475
 2,193,044
 2,205,266
Loss (income) from unconsolidated entities 29,643
 31,662
 26,505
 83,125
 62,448
 57,221
 62,448
 57,221
 60,285
 641
 7,411
 17,709
Transaction costs 34,702
 29,545
 9,704
 —
 —
 —
Stock-based compensation expense(1)
 25,588
 23,321
 24,710
 19,102
 25,753
 26,158
 25,753
 26,158
 25,443
 27,646
 23,618
 26,113
Loss (gain) on extinguishment of debt, net 48,593
 54,074
 54,074
 37,241
 17,593
 12,377
 17,593
 12,377
 16,415
 16,097
 20,109
 19,810
Loss (gain) on real estate dispositions, net (608,139) (648,763) (488,034) (344,250) (438,342) (406,942) (438,342) (406,942) (430,043) (415,575) (244,800) (232,363)
Impairment of assets 33,923
 47,554
 37,849
 124,483
 141,637
 132,638
 141,637
 132,638
 139,378
 115,579
 87,394
 92,701
Provision for loan losses 10,215
 10,215
 10,215
 62,966
 62,966
 62,966
 62,966
 62,966
 62,966
 —
 18,690
 18,690
Loss (gain) on derivatives and financial instruments, net (1,225) (489) 2,351
 2,284
 (6,113) (14,309) (6,113) (14,309) (5,642) (4,016) 670
 10,043
Other expenses(1)
 19,396
 23,997
 122,211
 176,395
 167,524
 171,243
 167,524
 171,243
 161,655
 111,990
 117,942
 126,994
Additional other income (16,664) (4,853) (4,853) —
 —
 (10,805) —
 (10,805) (10,805) (14,832) (14,832) (4,027)
Adjusted EBITDA $2,222,886
 $2,180,055
 $2,149,016
 $2,128,429
 $2,119,933
 $2,109,750
 $2,119,933
 $2,109,750
 $2,123,319
 $2,153,005
 $2,209,246
 $2,280,936
                        
Adjusted Fixed Charge Coverage Ratio:                        
Interest expense $506,982
 $490,886
 $483,765
 $484,622
 $488,800
 $493,986
 $488,800
 $493,986
 $509,440
 $526,592
 $549,049
 $568,969
Capitalized interest 18,035
 17,087
 14,866
 13,489
 11,696
 10,437
 11,696
 10,437
 9,813
 7,905
 7,896
 9,725
Non-cash interest expense (3,958) (5,386) (8,041) (10,359) (12,858) (11,628) (12,858) (11,628) (10,087) (10,860) (11,852) (10,888)
Total interest 521,059
 502,587
 490,590
 487,752
 487,638
 492,795
 487,638
 492,795
 509,166
 523,637
 545,093
 567,806
Adjusted EBITDA $2,222,886
 $2,180,055
 $2,149,016
 $2,128,429
 $2,119,933
 $2,109,750
 $2,119,933
 $2,109,750
 $2,123,319
 $2,153,005
 $2,209,246
 $2,280,936
Adjusted interest coverage ratio 4.27x 4.34x 4.38x 4.36x 4.35x 4.28x 4.35x 4.28x 4.17x 4.11x 4.05x 4.02x
                        
Total interest $521,059
 $502,587
 $490,590
 $487,752
 $487,638
 $492,795
 $487,638
 $492,795
 $509,166
 $523,637
 $545,093
 $567,806
Secured debt principal payments 72,073
 68,935
 66,084
 64,078
 62,077
 60,258
 62,077
 60,258
 58,866
 56,288
 55,584
 55,129
Preferred dividends 63,434
 58,762
 54,086
 49,410
 46,707
 46,704
 46,707
 46,704
 46,704
 46,704
 35,028
 23,352
Total fixed charges 656,566
 630,284
 610,760
 601,240
 596,422
 599,757
 596,422
 599,757
 614,736
 626,629
 635,705
 646,287
Adjusted EBITDA $2,222,886
 $2,180,055
 $2,149,016
 $2,128,429
 $2,119,933
 $2,109,750
 $2,119,933
 $2,109,750
 $2,123,319
 $2,153,005
 $2,209,246
 $2,280,936
Adjusted fixed charge coverage ratio 3.39x 3.46x 3.52x 3.54x 3.55x 3.52x 3.55x 3.52x 3.45x 3.44x 3.48x 3.53x
                        
(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.
  

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), 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.

48
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


 As of As of
 March 31, June 30, September 30, December 31, March 31, June 30, March 31, June 30, September 30, December 31, March 31, June 30,
 2017 2017 2017 2017 2018 2018 2018 2018 2018 2018 2019 2019
Book capitalization:                        
Borrowings under primary unsecured
credit facility
 $522,000
 $385,000
 $420,000
 $719,000
 $865,000
 $540,000
Unsecured credit facility and commercial paper $865,000
 $540,000
 $1,312,000
 $1,147,000
 $419,293
 $1,869,188
Long-term debt obligations(1)
 10,932,185
 10,994,946
 11,101,592
 11,012,936
 10,484,840
 10,895,559
 10,484,840
 10,895,559
 12,192,060
 12,150,144
 12,371,729
 13,390,344
Cash & cash equivalents(2)
 (380,360) (442,284) (250,776) (249,620) (202,824) (215,120) (202,824) (215,120) (191,199) (215,376) (249,127) (268,666)
Total net debt 11,073,825
 10,937,662
 11,270,816
 11,482,316
 11,147,016
 11,220,439
 11,147,016
 11,220,439
 13,312,861
 13,081,768
 12,541,895
 14,990,866
Total equity and noncontrolling interests(3)
 15,495,681
 15,702,399
 15,631,412
 15,300,646
 15,448,201
 15,198,644
 15,448,201
 15,198,644
 15,670,065
 16,010,645
 16,498,376
 16,452,806
Book capitalization $26,569,506
 $26,640,061
 $26,902,228
 $26,782,962
 $26,595,217
 $26,419,083
 $26,595,217
 $26,419,083
 $28,982,926
 $29,092,413
 $29,040,271
 $31,443,672
Net debt to book capitalization ratio 42% 41% 42% 43% 42% 42% 42% 42% 46% 45% 43% 48%
                        
Undepreciated book capitalization:                        
Total net debt $11,073,825
 $10,937,662
 $11,270,816
 $11,482,316
 $11,147,016
 $11,220,439
 $11,147,016
 $11,220,439
 $13,312,861
 $13,081,768
 $12,541,895
 $14,990,866
Accumulated depreciation and amortization 4,335,160
 4,568,408
 4,826,418
 4,838,370
 4,990,780
 5,113,928
 4,990,780
 5,113,928
 5,394,274
 5,499,958
 5,670,111
 5,539,435
Total equity and noncontrolling interests(3)
 15,495,681
 15,702,399
 15,631,412
 15,300,646
 15,448,201
 15,198,644
 15,448,201
 15,198,644
 15,670,065
 16,010,645
 16,498,376
 16,452,806
Undepreciated book capitalization $30,904,666
 $31,208,469
 $31,728,646
 $31,621,332
 $31,585,997
 $31,533,011
 $31,585,997
 $31,533,011
 $34,377,200
 $34,592,371
 $34,710,382
 $36,983,107
Net debt to undepreciated book
capitalization ratio
 36% 35% 36% 36% 35% 36% 35% 36% 39% 38% 36% 41%
                        
Market capitalization:                        
Common shares outstanding 364,564
 368,878
 370,342
 371,732
 371,971
 372,030
 371,971
 372,030
 375,577
 383,675
 403,740
 405,254
Period end share price $70.82
 $74.85
 $70.28
 $63.77
 $54.43
 $62.69
 $54.43
 $62.69
 $64.32
 $69.41
 $77.60
 $81.53
Common equity market capitalization $25,818,422
 $27,610,518
 $26,027,636
 $23,705,350
 $20,246,382
 $23,322,561
 $20,246,382
 $23,322,561
 $24,157,113
 $26,630,882
 $31,330,224
 $33,040,359
Total net debt 11,073,825
 10,937,662
 11,270,816
 11,482,316
 11,147,016
 11,220,439
 11,147,016
 11,220,439
 13,312,861
 13,081,768
 12,541,895
 14,990,866
Noncontrolling interests(3)
 859,478
 873,567
 901,487
 877,499
 889,766
 856,721
 889,766
 856,721
 1,362,380
 1,378,311
 1,419,885
 1,458,351
Preferred stock 718,750
 718,750
 718,503
 718,503
 718,498
 718,498
 718,498
 718,498
 718,498
 718,498
 —
 —
Enterprise value $38,470,475
 $40,140,497
 $38,918,442
 $36,783,668
 $33,001,662
 $36,118,219
 $33,001,662
 $36,118,219
 $39,550,852
 $41,809,459
 $45,292,004
 $49,489,576
Net debt to market capitalization ratio 29% 27% 29% 31% 34% 31% 34% 31% 34% 31% 28% 30%
                        
(1) Amounts include senior unsecured notes, secured debt and capital lease obligations as reflected on our Consolidated Balance Sheet.  
(1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheet. 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 Sheet. Operating lease liabilities related to the ASC 842 adoption are excluded.
(2) Inclusive of IRC Section 1031 deposits, if any.(2) Inclusive of IRC Section 1031 deposits, if any.  
(2) Inclusive of IRC Section 1031 deposits, if any.
(3) Includes all noncontrolling interests (redeemable and permanent) as reflected on our consolidated balance sheet.  
(3) Includes all noncontrolling interests (redeemable and permanent) as reflected on our Consolidated Balance Sheet.
(3) Includes all noncontrolling interests (redeemable and permanent) as reflected on our Consolidated Balance Sheet.

Critical Accounting Policies
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 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 the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 20172018 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2018.2019.

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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 the companyCompany uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. In particular, these forward-looking statements include, but are not limited to, those relating to the company’sCompany’s opportunities to acquire, develop or sell properties; the company’sCompany’s ability to close its anticipated acquisitions, investments or dispositions on currently anticipated terms or within currently anticipated timeframes; the expected performance of the company’sCompany’s operators/tenants and properties; the company’sCompany’s expected occupancy rates; the company’sCompany’s ability to declare and to make distributions to shareholders; the company’sCompany’s investment and financing opportunities and plans; the company’sCompany’s continued qualification as a real estate investment trust (“REIT”); the company’sCompany’s ability to access capital markets or other sources of funds; and the company’sCompany’s ability to meet its earnings guidance. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the company’sCompany’s actual results to differ materially from the company’sCompany’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the status of the economy; 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; the company’sCompany’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 the company’sCompany’s properties; the company’sCompany’s ability to re-lease space at similar rates as vacancies occur; the company’sCompany’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 the company’sCompany’s properties; changes in rules or practices governing the company’sCompany’s financial reporting; the movement of U.S. and foreign currency exchange rates; the company’sCompany’s ability to maintain its qualification as a REIT; and key management personnel recruitment and retention.  Other important factors are identified in the company’sCompany’s Annual Report on Form 10-K for the year ended December 31, 2017,2018, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the companyCompany 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 primary 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 primary unsecured revolving credit facility.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.
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 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):

 June 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
 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 $7,763,996
 $(482,781) $7,710,219
 $(500,951) $9,013,085
 $(635,567) $9,009,159
 $(548,558)
Secured debt 1,604,410
 (57,861) 1,749,958
 (63,492) 1,536,274
 (60,281) 1,639,983
 (59,522)
Totals $9,368,406
 $(540,642) $9,460,177
 $(564,443) $10,549,359
 $(695,848) $10,649,142
 $(608,080)
Our variable rate debt, including our primary unsecured revolving credit facility and Commercial Paper Program, is reflected at fair value. At June 30, 2018,2019, we had $2,095,427,000$4,722,179,000 outstanding related to our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $20,954,000.$47,222,000. At December 31, 2017,2018, we had $2,294,678,000$2,683,553,000 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 $22,947,000.$26,836,000.
     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 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 June 30, 2018,2019, 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 $7,000,000.$12,000,000. 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 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):
 June 30, 2018 December 31, 2017 June 30, 2019 December 31, 2018
 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 forward contracts $50,853
 $16,763
 $23,238
 $12,929
 $59,041
 $12,683
 $23,620
 $16,163
Debt designated as hedges 1,575,944
 15,759
 1,620,273
 16,203
 1,524,891
 15,249
 1,559,159
 15,592
Totals $1,626,797
 $32,522
 $1,643,511
 $29,132
 $1,583,932
 $27,932
 $1,582,779
 $31,755
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 1112 and 1617 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

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WELLTOWER INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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, 2017.2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period 
Total Number of Shares Purchased(1)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 
Total Number of Shares Purchased(1)
 Average Price Paid Per Share 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2018 through April 30, 2018 —
 $—
    
May 1, 2018 through May 31, 2018 2,369
 54.84
    
June 1, 2018 through June 30, 2018 238
 59.05
    
April 1, 2019 through April 30, 2019 282
 $74.10
    
May 1, 2019 through May 31, 2019 —
 —
    
June 1, 2019 through June 30, 2019 —
 —
    
Totals 2,607
 $55.23
     282
 $74.10
    
          
(1) During the three months ended June 30, 2018, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(1) During the three months ended June 30, 2019, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(1) During the three months ended June 30, 2019, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.
(2) No shares were purchased as part of publicly announced plans or programs.(2) No shares were purchased as part of publicly announced plans or programs.
(2) No shares were purchased as part of publicly announced plans or programs.
Item 5.Other Information
None.


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Item 6.Exhibits
123.1 
Statement Regarding ComputationSeventh Amended and Restated By-laws of RatioWelltower Inc., (filed with the Commission as Exhibit 3.1 to the Company's Form 8-K filed May 6, 2019 (File No. 001-08923), and incorporated herein by reference thereto).
10.1
Resignation Agreement, dated July 1, 2019, by and between Mercedes T. Kerr and Welltower Inc. *

10.2
Summary of Earnings to Fixed Charges and Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Unaudited).Director Compensation *
31.1 
Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer.
31.2 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1 
Certification pursuant to 18 U.S.C. Section 1350 by Chairman and Chief Executive Officer.
32.2 
Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
101.INS XBRL Instance Document*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*Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document*Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*Document
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in Inline XBRL
   
*Management contract or Compensatory Plan or Arrangement.
* Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2018 and December 31, 2017, (ii) the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017, (iii) the Consolidated Statements of Equity for the six months ended June 30, 2018 and 2017, (iv) the Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 and (v) the Notes to Unaudited Consolidated Financial Statements.
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 undersigned thereunto duly authorized.
 
WELLTOWER INC.
  
 
Date:

August 2, 2018 1, 2019By:  
/s/ THOMAS J. DEROSA
 
 Thomas J. DeRosa,  
 
Chairman and Chief Executive Officer
 (Principal Executive Officer) 
 
 
   
Date:August 2, 2018 1, 2019By:  
/s/ JOHN A. GOODEY
 
 John A. Goodey,  
 
Executive Vice President & Chief Financial Officer
 (Principal Financial Officer) 
 
 
   
Date:August 2, 2018 1, 2019By:  /s/ JOSHUA T. FIEWEGER  
 Joshua T. Fieweger,  
 
Senior Vice President & Controller
 (Principal Accounting Officer) 
 


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