WELLTOWER INC. [WELL] Filings

10-Q 1 well-20240630.htm 10-Q well-20240630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-8923

WELLTOWER INC.

(Exact name of registrant as specified in its charter)

Delaware

34-1096634

(State or other jurisdiction
of Incorporation)

(IRS Employer
Identification No.)

4500 Dorr Street

Toledo,

Ohio

43615

(Address of principal executive office)

(Zip Code)

(419) -

247-2800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of July 26, 2024, Welltower Inc. had 609,147,531 shares of common stock outstanding.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		Page
Item 1. Financial Statements (Unaudited)		3
	Consolidated Balance Sheets	3
	Consolidated Statements of Comprehensive Income	4
	Consolidated Statements of Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		54
Item 4. Controls and Procedures		55
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		56
Item 1A. Risk Factors		56
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		56
Item 5. Other Information		56
Item 6. Exhibits		57
Signatures		58

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	June 30, 2024 (Unaudited)		December 31, 2023 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	4,839,036	$	4,697,824
Buildings and improvements	38,540,623		37,796,553
Acquired lease intangibles	2,192,386		2,166,470
Real property held for sale, net of accumulated depreciation	81,033		372,883
Construction in progress	1,474,024		1,304,441
Less accumulated depreciation and amortization	(9,908,007)		(9,274,814)
Net real property owned	37,219,095		37,063,357
Right of use assets, net	360,282		350,969
Real estate loans receivable, net of credit allowance	1,791,202		1,361,587
Net real estate investments	39,370,579		38,775,913
Other assets:
Investments in unconsolidated entities	1,709,558		1,636,531
Goodwill	68,321		68,321
Cash and cash equivalents	2,776,628		1,993,646
Restricted cash	86,970		82,437
Straight-line rent receivable	420,666		443,800
Receivables and other assets	1,101,215		1,011,518
Total other assets	6,163,358		5,236,253
Total assets	$	45,533,937	$	44,012,166

Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	—	$	—
Senior unsecured notes	12,169,775		13,552,222
Secured debt	1,765,992		2,183,327
Lease liabilities	393,670		383,230
Accrued expenses and other liabilities	1,515,921		1,521,660
Total liabilities	15,845,358		17,640,439
Redeemable noncontrolling interests	262,273		290,605
Equity:
Common stock	609,859		565,894
Capital in excess of par value	36,693,283		32,741,949
Treasury stock	(114,674)		(111,578)
Cumulative net income	9,526,904		9,145,044
Cumulative dividends	(17,492,484)		(16,773,773)
Accumulated other comprehensive income (loss)	(246,462)		(163,160)
Total Welltower Inc. stockholders' equity	28,976,426		25,404,376
Noncontrolling interests	449,880		676,746
Total equity	29,426,306		26,081,122
Total liabilities and equity	$	45,533,937	$	44,012,166

Note: The consolidated balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Revenues:
Resident fees and services	$	1,393,473	$	1,159,449	$	2,753,747	$	2,291,134
Rental income	335,811		383,439		753,463		767,498
Interest income	63,453		38,710		116,117		75,115
Other income	32,147		83,880		61,298		92,460
Total revenues	1,824,884		1,665,478		3,684,625		3,226,207

Expenses:
Property operating expenses	1,111,297		958,672		2,208,210		1,916,425
Depreciation and amortization	382,045		341,945		747,908		681,057
Interest expense	133,424		152,337		280,742		296,740
General and administrative expenses	55,565		44,287		108,883		88,658
Loss (gain) on derivatives and financial instruments, net	(5,825)		1,280		(8,879)		2,210
Loss (gain) on extinguishment of debt, net	1,705		1		1,711		6
Provision for loan losses, net	5,163		2,456		6,177		3,233
Impairment of assets	2,394		1,086		45,725		13,715
Other expenses	48,684		11,069		62,815		33,814
Total expenses	1,734,452		1,513,133		3,453,292		3,035,858

Income (loss) from continuing operations before income taxes and other items	90,432		152,345		231,333		190,349
Income tax (expense) benefit	(1,101)		(3,503)		(7,292)		(6,548)
Income (loss) from unconsolidated entities	4,896		(40,332)		(2,887)		(47,403)
Gain (loss) on real estate dispositions, net	166,443		(2,168)		171,150		(1,421)
Income (loss) from continuing operations	260,670		106,342		392,304		134,977

Net income (loss)	260,670		106,342		392,304		134,977
Less: Net income (loss) attributable to noncontrolling interests(1)	5,956		3,302		10,444		6,264
Net income (loss) attributable to common stockholders	$	254,714	$	103,040	$	381,860	$	128,713

Weighted average number of common shares outstanding:
Basic	600,545		499,023		587,297		495,561
Diluted	604,563		501,970		591,047		498,305

Earnings per share:
Basic:
Income (loss) from continuing operations	$	0.43	$	0.21	$	0.67	$	0.27
Net income (loss) attributable to common stockholders	$	0.42	$	0.21	$	0.65	$	0.26

Diluted:
Income (loss) from continuing operations	$	0.43	$	0.21	$	0.66	$	0.27
Net income (loss) attributable to common stockholders(2)	$	0.42	$	0.20	$	0.65	$	0.26

Dividends declared and paid per common share(3)	$	0.61	$	0.61	$	1.22	$	1.22

(1) Includes amounts attributable to redeemable noncontrolling interests.

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

(3) In June, the Board approved to increase the dividend to $0.67 beginning in the third quarter.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net income (loss)	$	260,670	$	106,342	$	392,304	$	134,977

Other comprehensive income (loss):
Foreign currency translation gain (loss)	(28,340)		119,519		(114,170)		200,284
Derivative and financial instruments designated as hedges gain (loss)	9,096		(85,884)		69,711		(155,622)
Total other comprehensive income (loss)	(19,244)		33,635		(44,459)		44,662

Total comprehensive income (loss)	241,426		139,977		347,845		179,639
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)	5,258		8,286		2,208		14,127
Total comprehensive income (loss) attributable to common stockholders	$	236,168	$	131,691	$	345,637	$	165,512

(1) Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Six Months Ended June 30, 2024
	Common Stock		Capital in Excess of Par Value		Treasury Stock		Cumulative Net Income		Cumulative Dividends		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balances at January 1, 2024	$	565,894	$	32,741,949	$	(111,578)	$	9,145,044	$	(16,773,773)	$	(163,160)	$	676,746	$	26,081,122
Comprehensive income:
Net income (loss)							127,146						4,180		131,326
Other comprehensive income (loss)											(17,677)		(6,075)		(23,752)
Total comprehensive income															107,574
Net change in noncontrolling interests			(19,282)										6,191		(13,091)
Adjustment to members' interest from change in ownership in Welltower OP			(18,852)										18,852		—
Redemption of OP Units and DownREIT Units	19		825										(844)		—
Amounts related to stock incentive plans, net of forfeitures	112		11,936		(3,264)										8,784
Net proceeds from issuance of common stock	26,612		2,388,521												2,415,133
Dividends paid:
Common stock dividends									(352,529)						(352,529)
Balances at March 31, 2024	$	592,637	$	35,105,097	$	(114,842)	$	9,272,190	$	(17,126,302)	$	(180,837)	$	699,050	$	28,246,993
Comprehensive income:
Net income (loss)							254,714						5,806		260,520
Other comprehensive income (loss)											(18,656)		(95)		(18,751)
Total comprehensive income															241,769
Net change in noncontrolling interests			(49,943)								(46,969)		(256,613)		(353,525)
Adjustment to members' interest from change in ownership in Welltower OP			(1,833)										1,833		—
Redemption of OP Units and DownREIT Units	476		42,636										(101)		43,011
Amounts related to stock incentive plans, net of forfeitures	36		11,028		168										11,232
Net proceeds from issuance of common stock	16,710		1,586,298												1,603,008
Dividends paid:
Common stock dividends									(366,182)						(366,182)
Balances at June 30, 2024	$	609,859	$	36,693,283	$	(114,674)	$	9,526,904	$	(17,492,484)	$	(246,462)	$	449,880	$	29,426,306

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)




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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Six Months Ended
	June 30,
	2024		2023
Operating activities:
Net income	$	392,304	$	134,977
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	747,908		681,057
Other amortization expenses	28,106		20,086
Provision for loan losses, net	6,177		3,233
Impairment of assets	45,725		13,715
Stock-based compensation expense	22,398		19,960
Loss (gain) on derivatives and financial instruments, net	(8,879)		2,210
Loss (gain) on extinguishment of debt, net	1,711		6
Loss (income) from unconsolidated entities	2,887		47,403
Rental income less than (in excess of) cash received	13,696		(71,997)
Amortization related to above (below) market leases, net	14		(248)
Loss (gain) on real estate dispositions, net	(171,150)		1,421
Proceeds from (payments on) interest rate swap settlements	(59,555)		(65,485)
Distributions by unconsolidated entities	10,018		6,895
Increase (decrease) in accrued expenses and other liabilities	53,105		(9,380)
Decrease (increase) in receivables and other assets	(72,240)		8,450
Net cash provided from (used in) operating activities	1,012,225		792,303

Investing activities:
Cash disbursed for acquisitions, net of cash acquired	(607,527)		(424,094)
Cash disbursed for capital improvements to existing properties	(297,602)		(204,978)
Cash disbursed for construction in progress	(459,122)		(474,115)
Capitalized interest	(28,287)		(22,205)
Investment in loans receivable	(580,145)		(76,397)
Principal collected on loans receivable	138,059		46,493
Other investments, net of payments	(37,185)		(95,819)
Contributions to unconsolidated entities	(146,196)		(206,160)
Distributions by unconsolidated entities	21,859		125,176
Net proceeds from net investment hedge settlements	6,631		3,933
Proceeds from sales of real property	129,773		1,950
Net cash provided from (used in) investing activities	(1,859,742)		(1,326,216)

Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper	—		—
Net proceeds from issuance of senior unsecured notes	—		1,011,427
Payments to extinguish senior unsecured notes	(1,350,000)		—
Net proceeds from the issuance of secured debt	2,872		373,462
Payments on secured debt	(233,799)		(101,277)
Net proceeds from the issuance of common stock	4,020,345		1,333,908

Payments for deferred financing costs and prepayment penalties	(6)		(6,958)
Contributions by noncontrolling interests(1)	26,569		181,272
Distributions to noncontrolling interests(1)	(85,803)		(80,672)

Cash distributions to stockholders	(718,278)		(603,597)
Other financing activities	(24,215)		(5,254)
Net cash provided from (used in) financing activities	1,637,685		2,102,311
Effect of foreign currency translation on cash and cash equivalents and restricted cash	(2,653)		8,379
Increase (decrease) in cash, cash equivalents and restricted cash	787,515		1,576,777
Cash, cash equivalents and restricted cash at beginning of period	2,076,083		722,292
Cash, cash equivalents and restricted cash at end of period	$	2,863,598	$	2,299,069

Supplemental cash flow information:
Interest paid	$	280,277	$	273,979
Income taxes paid (received), net	9,125		1,157

(1) Includes amounts attributable to redeemable noncontrolling interests.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower Inc., an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. We invest with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people's wellness and overall health care experience. Welltower Inc., a real estate investment trust ("REIT"), owns interests in properties concentrated in major, high-growth markets in the United States ("U.S."), Canada and the United Kingdom ("U.K."), consisting of seniors housing and post-acute communities and outpatient medical properties.

We are structured as an umbrella partnership REIT under which substantially all of our business is conducted through Welltower OP LLC, the day-to-day management of which is exclusively controlled by Welltower Inc. Unless stated otherwise or the context otherwise requires, references to "Welltower" mean Welltower Inc. and references to "Welltower OP" mean Welltower OP LLC. References to "we," "us" and "our" mean collectively Welltower, Welltower OP and those entities/subsidiaries owned or controlled by Welltower and/or Welltower OP. Welltower's weighted average ownership in Welltower OP was 99.737% for the six months ended June 30, 2024. As of June 30, 2024, Welltower owned 99.730% of the issued and outstanding units of Welltower OP, with other investors owning the remaining 0.270% of outstanding units. We adjust the noncontrolling members' interest at the end of each period to reflect their interest in the net assets of Welltower OP.

2. Accounting Policies and Related Matters

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2024 are not necessarily an indication of the results that may be expected for the year ending December 31, 2024. 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, 2023.

New Accounting Standards

In November 2023, the FASB issued Accounting Standards Update No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all periods presented in the financial statements. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and disclosures.

In December 2023, the FASB issued Accounting Standards Update No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09")," which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and disclosures.

3. Real Property Acquisitions and Development

The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets and liabilities at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with acquisitions, including due diligence costs, fees for legal and valuation services, termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Transaction costs directly related to asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in other expenses on our Consolidated Statements of Comprehensive Income. Our acquisition of properties are at times subject to earn out provisions based on the future operating performance of the acquired properties, which could result in incremental payments in the future. Our policy is to recognize such contingent consideration when the contingency is resolved and the consideration becomes payable.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Six Months Ended
	June 30, 2024								June 30, 2023
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	68,662	$	14,193	$	10,160	$	93,015	$	4,426	$	7,370	$	60,527	$	72,323
Buildings and improvements	422,488		61,914		33,064		517,466		50,172		74,289		256,190		380,651
Acquired lease intangibles	34,827		—		2,193		37,020		970		—		39,090		40,060
Construction in progress	19,397		—		—		19,397		—		—		—		—

Right of use assets, net	—		—		—		—		—		—		927		927
Total net real estate assets	545,374		76,107		45,417		666,898		55,568		81,659		356,734		493,961
Receivables and other assets	1,403		34		112		1,549		2,089		—		358		2,447
Total assets acquired	546,777		76,141		45,529		668,447		57,657		81,659		357,092		496,408
Secured debt	—		—		—		—		(21,767)		—		(40,953)		(62,720)
Lease liabilities	—		—		—		—		—		—		(953)		(953)
Accrued expenses and other liabilities	(11,905)		—		(182)		(12,087)		(570)		—		(8,071)		(8,641)
Total liabilities acquired	(11,905)		—		(182)		(12,087)		(22,337)		—		(49,977)		(72,314)
Noncontrolling interests	(1,149)		—		—		(1,149)		—		—		—		—
Non-cash acquisition related activity(1)	(46,974)		(710)		—		(47,684)		—		—		—		—
Cash disbursed for acquisitions	486,749		75,431		45,347		607,527		35,320		81,659		307,115		424,094
Construction in progress additions	317,468		28		182,290		499,786		295,120		25,646		190,164		510,930
Less: Capitalized interest	(23,712)		—		(4,575)		(28,287)		(16,761)		(2,416)		(3,028)		(22,205)
Accruals (2)	474		126		(12,977)		(12,377)		746		(9,384)		(5,972)		(14,610)
Cash disbursed for construction in progress	294,230		154		164,738		459,122		279,105		13,846		181,164		474,115
Capital improvements to existing properties	239,484		11,706		46,412		297,602		165,187		11,784		28,007		204,978
Total cash invested in real property, net of cash acquired	$	1,020,463	$	87,291	$	256,497	$	1,364,251	$	479,612	$	107,289	$	516,286	$	1,103,187

(1) Primarily relates to the acquisition of assets previously financed as real estate loans receivable and the acquisition of assets previously recognized as investments in unconsolidated entities.

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

Announced Acquisitions

In February 2024, we entered into a definitive agreement to acquire 25 Seniors Housing Operating properties for a total purchase price of $969 million, which will be managed under the Affinity brand. The transaction is expected to close in the second half of 2024 and will be funded through a combination of cash and the expected assumption of approximately $521 million of secured debt, subject to customary closing conditions and lender consents.

In July 2024, we entered into a definitive agreement to acquire a seniors housing portfolio for approximately $0.9 billion. The transaction is expected to close later in the year, subject to customary closing conditions.

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, 2024		June 30, 2023
Development projects:
Seniors Housing Operating	$	194,012	$	140,865
Triple-net	—		141,142
Outpatient Medical	106,596		21,173
Total development projects	300,608		303,180
Expansion projects	20,229		26,125
Total construction in progress conversions	$	320,837	$	329,305

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Real Estate Intangibles

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


	June 30, 2024		December 31, 2023
Assets:
In place lease intangibles	$	2,016,507	$	2,001,827
Above market tenant leases	66,663		66,663
Lease commissions	109,216		97,980
Gross historical cost	2,192,386		2,166,470
Accumulated amortization	(1,743,005)		(1,651,656)
Net book value	$	449,381	$	514,814

Liabilities:
Below market tenant leases	$	70,364	$	70,364
Accumulated amortization	(50,325)		(47,939)
Net book value	$	20,039	$	22,425

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Rental income related to (above)/below market tenant leases, net	$	(54)	$	130	$	(85)	$	175
Amortization related to in place lease intangibles and lease commissions	(60,876)		(53,774)		(107,667)		(109,925)

5. Dispositions, Real Property Held for Sale and Impairment

We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (i.e., property type, relationship or geography). At June 30, 2024, eight Seniors Housing Operating properties and one Outpatient Medical property with an aggregate real estate balance of $81,033,000 were classified as held for sale. Expected gross sales proceeds related to these held for sale properties are approximately $95,250,000.

During the six months ended June 30, 2024, we recorded impairment charges of $41,157,000 related to nine Seniors Housing Operating properties which were disposed of or classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell and $4,568,000 related to two Seniors Housing Operating properties and one Triple-net property classified as held for use for which the carrying value exceeded the estimated fair value.

During the six months ended June 30, 2023, we recorded $13,715,000 of impairment charges related to two Seniors Housing Operating properties and one Triple-net property classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell, and one Seniors Housing Operating property classified as held for use for which the carrying value exceeded the estimated fair value.

Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations are not reclassified on our Consolidated Statements of Comprehensive Income. We recognized income (loss) from continuing operations before income taxes and other items from properties sold or classified as held for sale as of June 30, 2024 of $(9,271,000) and $(47,058,000) for the three and six months ended June 30, 2024 and $61,899,000 and $46,849,000 for the same periods in 2023, respectively.

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


	Six Months Ended
	June 30, 2024		June 30, 2023
Real estate dispositions:(1)
Seniors Housing Operating	$	353,290	$	243,695
Triple-net	170		2,028
Outpatient Medical	39,567		—
Total dispositions	393,027		245,723
Gain (loss) on real estate dispositions, net	171,150		(1,421)
Net other assets/(liabilities) disposed	(78)		(624)
Non-cash consideration	(434,326)		(241,728)
Cash proceeds from real estate dispositions	$	129,773	$	1,950

(1) During the six months ended June 30, 2024, includes the disposition of unconsolidated equity method investments that owned six Seniors Housing Operating properties and one Outpatient Medical property.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Strategic Dissolution of Revera Joint Ventures

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

In June 2023, we closed the U.K. portfolio portion of the transaction through the acquisition of the remaining ownership interest in 29 properties previously held in two separate consolidated joint venture structures in which we owned 75% and 90% of the interests in exchange for the disposition to Revera of our interests in four properties. In addition, we received cash from Revera of $107,341,000 relating to the net settlement of loans previously made to the joint ventures. Operations for the 29 retained properties were transitioned to Avery Healthcare.

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

We closed the portion of the transactions predominantly related to the U.S. portfolio during the third quarter of 2023 through (i) the acquisition of the remaining interests in ten properties currently under development or recently developed by Sunrise Senior Living that were previously held within an equity method joint venture owned 34% by us and 66% by Revera, (ii) the disposition of our minority interests in 12 U.S. properties and one Canadian development project and (iii) the disposition of our 34% interest in the Sunrise Senior Living management company. We recorded net real estate investments of $479,525,000 related to the ten acquired and now consolidated properties, which was comprised of $31,456,000 of cash consideration and $448,069,000 of non-cash consideration. Non-cash consideration primarily includes $270,486,000 of assumed mortgage debt secured by the acquired properties, which was subsequently repaid in full by us immediately following the transaction, $47,734,000 of carryover investment from our prior 34% equity method ownership interest and $119,258,000 of fair value interests in the 13 properties transferred by us to Revera. We also derecognized $56,905,000 of equity method investments related to the 13 properties retained by Revera and recorded a gain on real estate dispositions of $62,075,000. In conjunction with this transaction, operations for two of the now wholly-owned properties, along with operations for 26 existing wholly-owned properties, transitioned to Oakmont Management Group.

In April 2024, we closed the Canadian portfolio portion of the transaction through the acquisition of the remaining ownership interest in 71 properties previously held in consolidated joint venture structures in which we owned 75% of the interests, in exchange for the disposition to Revera of our interests in 14 properties. In addition, we received cash of $60,614,000 relating to the net settlement of loans previously made to Revera to fund its share of the pay-off of third party secured debt of the joint ventures. Operations for the 71 retained properties previously transitioned to Cogir Senior Living (53), Levante Living (12) and Optima Living (6) during 2023.

Total net proceeds related to the 14 properties disposed were $430,898,000, which included non-cash consideration from Revera of $434,326,000, comprised primarily of the net fair value of interests received by us of $219,940,000, debt which we were relieved of in the amount of $164,640,000 and an allocation of Revera's noncontrolling interests in the disposed properties of $53,174,000. We disposed of net real property owned of $293,257,000 and paid $3,428,000 of cash transaction-related expenses for the sale of the 14 properties, resulting in a gain of $137,641,000 recognized within gain (loss) on real estate dispositions, net within our Consolidated Statements of Comprehensive Income. Consideration transferred to acquire the additional interests in the 71 properties was primarily comprised of the fair value of interests transferred by us of $219,940,000, a cash payment of $51,986,000 to equalize the value exchanged between the parties and $17,258,000 of cash paid for transaction-related expenses. We derecognized $246,564,000 of Revera's noncontrolling interests in the acquired properties with an adjustment of $42,619,000 recognized in capital in excess of par value.

The non-cash investing activity with respect to the sale of the properties to Revera and non-cash financing activity with respect to the acquisition of Revera's interests have been excluded from our Consolidated Statement of Cash Flows.

Genesis HealthCare

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

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

6. Leases

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

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


		Six Months Ended
	Classification	June 30, 2024		June 30, 2023
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	11,830	$	11,093
Non-real estate investment lease expense	General and administrative expenses	3,084		3,586
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,165		3,628
Interest on lease liabilities	Interest expense	1,747		1,980
Sublease income	Rental income	—		(3,933)
Total		$	18,826	$	16,354

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

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


	Classification	June 30, 2024		December 31, 2023
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	281,313	$	283,293
Finance leases - real estate	Right of use assets, net	78,969		67,676
Real estate right of use assets, net		360,282		350,969
Operating leases - non-real estate investments	Receivables and other assets	9,660		11,338

Total right of use assets, net		$	369,942	$	362,307

Lease liabilities:
Operating leases		$	302,309	$	303,553
Finance leases		91,361		79,677
Total		$	393,670	$	383,230

Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. During the six months ended June 30, 2024, we wrote off previously recognized straight-line rent receivable and unamortized lease incentive balances of $97,665,000 through a reduction of rental income, which relate to leases for which the collection of substantially all contractual lease payments was no longer probable due primarily to agreements reached to convert Triple-net leased properties to Seniors Housing Operating RIDEA structures (see Note 19).

Leases in our Triple-net and Outpatient Medical portfolios recognized under ASC 842, "Leases" (ASC 842), typically include some form of operating expense reimbursement by the tenant. For the six months ended June 30, 2024, we recognized $753,463,000 of rental income related to operating leases, of which $109,607,000 was for variable lease payments that primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the six months ended June 30, 2023, we recognized $767,498,000 of rental income related to operating leases, of which $108,566,000 was for variable lease payments.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the majority of our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and as such, resident agreements are accounted for under ASC 606, "Revenue from Contracts with Customers." Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842. The amount of revenue related to these leases was $265,959,000 and $222,452,000 for the six months ended June 30, 2024 and 2023, respectively.

7. Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets. Real estate loans receivable consists of mortgage loans and other real estate loans, which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, as well as corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $35,569,000 and $31,798,000 as of June 30, 2024 and December 31, 2023, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):


	June 30, 2024		December 31, 2023
Mortgage loans	$	1,511,008	$	1,057,516
Other real estate loans	306,399		324,660
Allowance for credit losses on real estate loans receivable	(26,205)		(20,589)
Real estate loans receivable, net of credit allowance	1,791,202		1,361,587
Non-real estate loans	519,513		503,993
Allowance for credit losses on non-real estate loans receivable	(171,888)		(173,874)
Non-real estate loans receivable, net of credit allowance	347,625		330,119
Total loans receivable, net of credit allowance	$	2,138,827	$	1,691,706

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


	Six Months Ended
	June 30, 2024		June 30, 2023
Advances on loans receivable	$	580,145	$	76,397
Less: Receipts on loans receivable	138,059		46,493
Net cash advances (receipts) on loans receivable	$	442,086	$	29,904

During the six months ended June 30, 2024, we provided a first mortgage loan collateralized by a portfolio of seniors housing communities for $456,199,000. The loan bears interest at 10% per annum.

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

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

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	June 30, 2024
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2023	$	196,211	$	(169,808)	$	26,403	6
Collective loan pool	2010 - 2019	230,146		(3,021)		227,125		16
Collective loan pool	2020	33,415		(439)		32,976		5
Collective loan pool	2021	867,202		(11,566)		855,636		10
Collective loan pool	2022	115,338		(1,514)		113,824		16
Collective loan pool	2023	343,267		(4,507)		338,760		13
Collective loan pool	2024	551,341		(7,238)		544,103		8
Total loans		$	2,336,920	$	(198,093)	$	2,138,827	74

During the three months ended June 30, 2024, certain secured and unsecured indebtedness payable by Genesis to us, which has a carrying value of $202,434,000, was modified to extend the maturity date to June 30, 2025, with no other changes to the terms.

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


	Six Months Ended
	June 30, 2024		June 30, 2023
Balance at beginning of period	$	194,463	$	164,249
Provision for loan losses, net(1)	6,177		3,233
Purchased deteriorated loan	—		19,077

Loan write-offs	(2,399)		—
Foreign currency translation	(148)		(219)
Balance at end of period	$	198,093