Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Welltower Inc.

We have audited the accompanying consolidated balance sheets of Welltower Inc. as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Welltower Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company changed its presentation of debt issuance costs as a result of the adoption of the amendments to the FASB Accounting Standards Codification resulting from Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Welltower Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 18, 2016 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Toledo, Ohio

February 18, 2016

CONSOLIDATED BALANCE SHEETS

WELLTOWER, INC. AND SUBSIDIARIES


				December 31,		December 31,
				2015		2014
Assets				(In thousands)
Real estate investments:
	Real property owned:
		Land and land improvements		$	2,563,445	$	2,046,541
		Buildings and improvements			25,522,542		21,799,313
		Acquired lease intangibles			1,350,585		1,135,936
		Real property held for sale, net of accumulated depreciation			169,950		323,818
		Construction in progress			258,968		186,327
			Gross real property owned		29,865,490		25,491,935
		Less accumulated depreciation and amortization			(3,796,297)		(3,020,908)
			Net real property owned		26,069,193		22,471,027
		Real estate loans receivable			819,492		380,169
	Net real estate investments				26,888,685		22,851,196
Other assets:
		Investments in unconsolidated entities			542,281		744,151
		Goodwill			68,321		68,321
		Cash and cash equivalents			360,908		473,726
		Restricted cash			61,782		79,697
		Straight-line receivable			395,562		279,806
		Receivables and other assets			706,306		466,026
			Total other assets		2,135,160		2,111,727
Total assets				$	29,023,845	$	24,962,923

Liabilities and equity
Liabilities:
		Borrowings under primary unsecured credit facility		$	835,000	$	-
		Senior unsecured notes			8,548,055		7,729,405
		Secured debt			3,509,142		2,963,186
		Capital lease obligations			75,489		84,049
		Accrued expenses and other liabilities			697,191		626,825
Total liabilities					13,664,877		11,403,465

Redeemable noncontrolling interests					183,083		86,409

Equity:
		Preferred stock			1,006,250		1,006,250
		Common stock			354,811		328,835
		Capital in excess of par value			16,478,300		14,740,712
		Treasury stock			(44,372)		(35,241)
		Cumulative net income			3,725,772		2,842,022
		Cumulative dividends			(6,846,056)		(5,635,923)
		Accumulated other comprehensive income (loss)			(88,243)		(77,009)
		Other equity			4,098		5,507
			Total Welltower Inc. stockholders’ equity		14,590,560		13,175,153
		Noncontrolling interests			585,325		297,896
Total equity					15,175,885		13,473,049
Total liabilities and equity				$	29,023,845	$	24,962,923

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)

			Year Ended December 31,
			2015		2014		2013
Revenues:
	Rental income		$	1,598,948	$	1,405,767	$	1,227,589
	Resident fees and services			2,158,031		1,892,237		1,616,290
	Interest income			84,141		37,667		32,663
	Other income			18,706		7,875		4,066
		Total revenues		3,859,826		3,343,546		2,880,608
Expenses:
	Interest expense			492,169		481,039		458,360
	Property operating expenses			1,622,257		1,403,358		1,206,813
	Depreciation and amortization			826,240		844,130		865,800
	General and administrative			147,416		142,943		108,318
	Transaction costs			110,926		69,538		133,401
	Loss (gain) on derivatives, net			(58,427)		(1,495)		4,470
	Loss (gain) on extinguishment of debt, net			34,677		9,558		(909)
	Provision for loan losses			-		-		2,110
	Impairment of assets			2,220		-		-
	Other expenses			46,231		10,262		-
		Total expenses		3,223,709		2,959,333		2,778,363
Income from continuing operations before income taxes
	and income from unconsolidated entities			636,117		384,213		102,245
Income tax (expense) benefit				(6,451)		1,267		(7,491)
Income (loss) from unconsolidated entities				(21,504)		(27,426)		(8,187)
Income from continuing operations				608,162		358,054		86,567
Discontinued operations:
	Gain (loss) on sales of properties, net			-		6,411		49,138
	Income (loss) from discontinued operations, net			-		724		2,575
		Discontinued operations, net		-		7,135		51,713
Gain (loss) on real estate dispositions, net				280,387		147,111		-
Net income				888,549		512,300		138,280
Less: Preferred stock dividends				65,406		65,408		66,336
Less: Net income (loss) attributable to noncontrolling interests(1)				4,799		147		(6,770)

Net income attributable to common stockholders			$	818,344	$	446,745	$	78,714

Average number of common shares outstanding:
	Basic			348,240		306,272		276,929
	Diluted			349,424		307,747		278,761

Earnings per share:
	Basic:
	Income from continuing operations attributable to common
		stockholders, including real estate dispositions	$	2.35	$	1.44	$	0.10
	Discontinued operations, net			-		0.02		0.19
	Net income attributable to common stockholders*		$	2.35	$	1.46	$	0.28

	Diluted:
	Income from continuing operations attributable to common
		stockholders, including real estate dispositions	$	2.34	$	1.43	$	0.10
	Discontinued operations, net			-		0.02		0.19
	Net income attributable to common stockholders*		$	2.34	$	1.45	$	0.28

Amounts may not sum due to rounding

(1) Includes amounts attributable to redeemable noncontrolling interests

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

		Year Ended December 31,
		2015		2014		2013

Net income		$	888,549	$	512,300	$	138,280

Other comprehensive income (loss):
	Unrecognized gain/(loss) on equity investments		-		389		(173)
	Unrecognized gain/(loss) on cash flow hedges		(766)		4,409		1,898
	Unrecognized actuarial gain/(loss)		246		(137)		1,522
	Foreign currency translation gain/(loss)		(46,679)		(71,964)		(23,247)
Total other comprehensive income (loss)			(47,199)		(67,303)		(20,000)

Total comprehensive income			841,350		444,997		118,280
Total comprehensive income attributable to noncontrolling interests(1)			(31,166)		(14,678)		(13,267)
Total comprehensive income attributable to stockholders		$	810,184	$	430,319	$	105,013

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes

CONSOLIDATED STATEMENTS OF EQUITY

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)														Accumulated
						Capital in								Other
		Preferred		Common		Excess of		Treasury		Cumulative		Cumulative		Comprehensive		Other		Noncontrolling
		Stock		Stock		Par Value		Stock		Net Income		Dividends		Income		Equity		Interests		Total
Balances at December 31, 2012		$	1,022,917	$	260,396	$	10,543,690	$	(17,875)	$	2,184,819	$	(3,694,579)	$	(11,028)	$	6,461	$	225,718	$	10,520,519
Comprehensive income:
	Net income										145,050								(5,487)		139,563
	Other comprehensive income:														(13,503)				(6,497)		(20,000)
Total comprehensive income																					119,563
Net change in noncontrolling interests					1,109		23,815												128,014		152,938
Amounts related to issuance of common stock
	from dividend reinvestment and stock
	incentive plans, net of forfeitures				3,852		239,837		(3,388)								(1,555)				238,746
Net proceeds from sale of common stock					23,000		1,607,281														1,630,281
Net proceeds from sale of preferred stock
Equity component of convertible debt					988		(1,543)														(555)
Equity consideration in business combinations
Proceeds from issuance of preferred shares
Redemption of preferred stock
Conversion of preferred stock			(5,556)		116		5,440														-
Option compensation expense																	1,114				1,114
Cash dividends paid:
	Common stock cash dividends												(839,939)								(839,939)
	Preferred stock cash dividends												(66,336)								(66,336)
Balances at December 31, 2013			1,017,361		289,461		12,418,520		(21,263)		2,329,869		(4,600,854)		(24,531)		6,020		341,748		11,756,331
Comprehensive income:
	Net income										512,153								(342)		511,811
	Other comprehensive income:														(52,478)				(14,825)		(67,303)
Total comprehensive income																					444,508
Net change in noncontrolling interests							(17,653)												(28,685)		(46,338)
Amounts related to issuance of common stock
	from dividend reinvestment and stock
	incentive plans, net of forfeitures				4,958		297,975		(13,978)								(1,425)				287,530
Net proceeds from sale of common stock					33,925		2,030,057														2,063,982
Equity component of convertible debt					258		935														1,193
Equity consideration in business combinations
Proceeds from issuance of preferred shares
Redemption of preferred stock
Conversion of preferred stock			(11,111)		233		10,878														-
Option compensation expense																	912				912
Cash dividends paid:
	Common stock cash dividends												(969,661)								(969,661)
	Preferred stock cash dividends												(65,408)								(65,408)
Balances at December 31, 2014			1,006,250		328,835		14,740,712		(35,241)		2,842,022		(5,635,923)		(77,009)		5,507		297,896		13,473,049
Comprehensive income:
	Net income										883,750								4,878		888,628
	Other comprehensive income:														(11,234)				(35,965)		(47,199)
Total comprehensive income																					841,429
Net change in noncontrolling interests							(23,077)												318,516		295,439
Amounts related to issuance of common stock
	from dividend reinvestment and stock
	incentive plans, net of forfeitures				4,400		305,022		(9,131)								(2,107)				298,184
Net proceeds from sale of common stock					20,246		1,450,212														1,470,458
Equity component of convertible debt					1,330		5,431														6,761
Option compensation expense																	698				698
Cash dividends paid:
	Common stock cash dividends												(1,144,727)								(1,144,727)
	Preferred stock cash dividends												(65,406)								(65,406)
Balances at December 31, 2015		$	1,006,250	$	354,811	$	16,478,300	$	(44,372)	$	3,725,772	$	(6,846,056)	$	(88,243)	$	4,098	$	585,325	$	15,175,885

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS

WELLTOWER INC. AND SUBSIDIARIES

			Year Ended December 31,
(In thousands)			2015		2014		2013
Operating activities
Net income			$	888,549	$	512,300	$	138,280
Adjustments to reconcile net income to
	net cash provided from (used in) operating activities:
		Depreciation and amortization		826,240		844,130		873,960
		Other amortization expenses		4,991		6,971		8,097
		Provision for loan losses		-		-		2,110
		Impairment of assets		2,220		-		-
		Stock-based compensation expense		30,844		32,075		20,177
		Loss (gain) on derivatives, net		(58,427)		(1,495)		4,470
		Loss (gain) on extinguishment of debt, net		34,677		9,558		(909)
		Loss (income) from unconsolidated entities		21,504		27,426		8,187
		Rental income in excess of cash received		(115,756)		(74,552)		(46,068)
		Amortization related to above (below) market leases, net		4,018		739		460
		Loss (gain) on sales of properties, net		(280,387)		(153,522)		(49,138)
		Other (income) expense, net		31,979		-		-
		Distributions by unconsolidated entities		637		9,060		8,885
		Increase (decrease) in accrued expenses and other liabilities		(18,099)		(48,381)		67,557
		Decrease (increase) in receivables and other assets		478		(25,639)		(47,571)
Net cash provided from (used in) operating activities				1,373,468		1,138,670		988,497

Investing activities
	Cash disbursed for acquisitions			(3,364,891)		(2,210,600)		(3,597,955)
	Cash disbursed for capital improvements to existing properties			(187,752)		(132,780)		(135,832)
	Cash disbursed for construction in progress			(244,561)		(197,881)		(247,560)
	Capitalized interest			(8,670)		(7,150)		(6,700)
	Investment in real estate loans receivable			(598,722)		(202,207)		(117,059)
	Other investments, net of payments			(141,994)		(100,033)		(15,634)
	Principal collected on real estate loans receivable			131,830		105,496		102,886
	Contributions to unconsolidated entities			(160,323)		(353,496)		(99,769)
	Distributions by unconsolidated entities			130,880		57,183		30,853
	Proceeds from (payments on) derivatives			106,360		10,269		(6,803)
	Decrease (increase) in restricted cash			29,719		(6,072)		79,957
	Proceeds from sales of real property			823,964		911,065		482,023
Net cash provided from (used in) investing activities				(3,484,160)		(2,126,206)		(3,531,593)

Financing activities
	Net increase (decrease) under unsecured lines of credit arrangements			835,000		(130,000)		130,000
	Proceeds from issuance of senior unsecured notes			1,451,434		773,992		1,756,192
	Payments to extinguish senior unsecured notes			(558,830)		(365,188)		(517,625)
	Net proceeds from the issuance of secured debt			228,685		109,503		89,208
	Payments on secured debt			(573,390)		(341,839)		(674,103)
	Net proceeds from the issuance of common stock			1,755,722		2,343,868		1,854,637
	Decrease (increase) in deferred loan expenses			(11,513)		(16,782)		(13,503)
	Contributions by noncontrolling interests(1)			173,018		9,962		5,072
	Distributions to noncontrolling interests(1)			(50,877)		(43,691)		(35,592)
	Acquisitions of noncontrolling interests			(5,663)		(1,175)		(23,247)
	Cash distributions to stockholders			(1,210,133)		(1,035,069)		(906,275)
	Other financing activities			(27,004)		(409)		2,906
Net cash provided from (used in) financing activities				2,006,449		1,303,172		1,667,670

Effect of foreign currency translation on cash and cash equivalents				(8,575)		(690)		442

Increase (decrease) in cash and cash equivalents				(112,818)		314,946		(874,984)
Cash and cash equivalents at beginning of period				473,726		158,780		1,033,764
Cash and cash equivalents at end of period			$	360,908	$	473,726	$	158,780

Supplemental cash flow information:
	Interest paid		$	492,771	$	504,165	$	447,108
	Income taxes paid			12,214		18,548		12,110

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower Inc. (formerly Health Care REIT, Inc.), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. WelltowerTM, a real estate investment trust (“REIT”), owns 1,482 properties in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Founded in 1970, we were the first REIT to invest exclusively in health care facilities.

2. Accounting Policies and Related Matters

Principles of Consolidation

The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture (“JV”) entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation. At inception of JV transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. Accounting Standards Codification Topic 810, Consolidations (“ASC 810”), requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance. For investments in JVs, we evaluate the type of rights held by the limited partner(s), which may preclude consolidation in circumstances in which the sole general partner would otherwise consolidate the limited partnership. The assessment of limited partners’ rights and their impact on the presumption of control over a limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (i) there is a change to the terms or in the exercisability of the rights of the limited partners, (ii) the sole general partner increases or decreases its ownership in the limited partnership, or (iii) there is an increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights of managing members of limited liability companies.

Use of Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases 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. Certain payments made to operators are treated as lease incentives and amortized as a reduction of revenue over the lease term. We recognize resident fees and services, other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.

Restricted Cash

Restricted cash primarily consists of amounts held by lenders to provide future payments for real estate taxes, insurance, tenant and capital improvements and amounts held in escrow relating to acquisitions we are entitled to receive over a period of time as outlined in the escrow agreement.

Deferred Loan Expenses

Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments of debt

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

arrangements. We amortize these costs over the term of the debt using the straight-line method, which approximates the effective interest method.

Investments in Unconsolidated Entities

Investments in entities that we do not consolidate but have the ability to exercise significant influence over operating and financial policies are reported under the equity method of accounting. Under the equity method, our share of the investee’s earnings or losses is included in our consolidated results of operations. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded.

Marketable Securities

We classify marketable securities as available-for-sale. These securities are carried at their fair value with unrealized gains and losses recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). When we determine declines in fair value of marketable securities are other-than-temporary, a loss is recognized in earnings.

Redeemable Noncontrolling Interests

Certain noncontrolling interests are redeemable at fair value. Accordingly, we record the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income or loss and dividends or (ii) the redemption value. If it is probable that the interests will be redeemed in the future, we accrete the carrying value to the redemption value over the period until expected redemption, currently a weighted-average period of approximately four years. In accordance with ASC 810, the redeemable noncontrolling interests are classified outside of permanent equity, as a mezzanine item, in the balance sheet. At December 31, 2015, the current redemption value of redeemable noncontrolling interests exceeded the carrying value of $183,083,000 by $116,000,000.

During 2014 and 2015, we entered into DownREIT partnerships which give a real estate seller the ability to exchange its property on a tax deferred basis for equity membership interests (“OP units”). The OP units may be redeemed any time following the first anniversary of the date of issuance at the election of the holders for one share of our common stock per unit or, at our option, cash.

Real Property Owned

Real property developed by us is recorded at cost, including the capitalization of construction period interest. Expenditures for repairs and maintenance are expensed as incurred. Property acquisitions are accounted for as business combinations where we measure the assets acquired, liabilities (including assumed debt and contingencies) and any noncontrolling interests at their fair values on the acquisition date. The cost of real property acquired, which represents substantially all of the purchase price, is allocated to net tangible and identifiable intangible assets based on their respective fair values. These properties are depreciated on a straight-line basis over their estimated useful lives which range from 15 to 40 years for buildings and 5 to 15 years for improvements. Tangible assets primarily consist of land, buildings and improvements, including those related to capital leases. We consider costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and, accordingly, such costs are reflected as investment activities in our statement of cash flows.

The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value associated with the presence of in-place tenants or residents. The value allocable to the above or below market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in acquired lease intangibles and below market leases are included in other liabilities in the balance sheet and are amortized to rental income over the remaining terms of the respective leases.

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values for in-place tenants based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The total amount of other intangible assets acquired is further allocated to in-place lease values for in-place residents with such value representing (i) value associated with lost revenue related to

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

tenant reimbursable operating costs that would be incurred in an assumed re-leasing period, and (ii) value associated with lost rental revenue from existing leases during an assumed re-leasing period. This intangible asset will be amortized over the remaining life of the lease.

The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset and the existence of a master lease which may link the cash flows of an individual asset to a larger portfolio of assets leased to the same tenant. If these factors and the projected undiscounted cash flows of the asset over the remaining depreciation period indicate that the asset will not be recoverable, the carrying value is reduced to the estimated fair market value. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us.

Capitalization of Construction Period Interest

We capitalize interest costs associated with funds used for the construction of properties owned directly by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our cost of financing. We capitalize interest costs related to construction of real property owned by us. Our interest expense reflected in the consolidated statements of comprehensive income has been reduced by the amounts capitalized.

Gain on Sale of Assets

We recognize sales of assets only upon the closing of the transaction with the purchaser. Payments received from purchasers prior to closing are recorded as deposits and classified as other assets on our consolidated balance sheets. Gains on assets sold are recognized using the full accrual method upon closing when (i) the collectability of the sales price is reasonably assured, (ii) we are not obligated to perform significant activities after the sale to earn the profit, (iii) we have received adequate initial investment from the purchaser and (iv) other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain recognition on sales of real estate.

Real Estate Loans Receivable

Real estate loans receivable consist of mortgage loans and other real estate loans. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks. The loans are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guaranties and/or personal guaranties.

Allowance for Losses on Loans Receivable

The allowance for losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation 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 factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying collateral. If such factors indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired 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 original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

Goodwill

We account for goodwill in accordance with U.S. GAAP. Goodwill is tested annually for impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. We have not had any goodwill impairments.

Fair Value of Derivative Instruments

Derivatives are recorded at fair value on the balance sheet as assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of our forward exchange contracts are estimated by pricing models that consider foreign currency spot rates, forward trade rates and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. See Note 11 for additional information.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Federal Income Tax

We have elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year, and made no provision for federal income tax purposes prior to our acquisition of our “taxable REIT subsidiaries.” As a result of these as well as subsequent acquisitions, we now record income tax expense or benefit with respect to certain of our entities that are taxed as taxable REIT subsidiaries under provisions similar to those applicable to regular corporations and not under the REIT provisions. We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur. See Note 18 for additional information.

Foreign Currency

Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. We translate the results of operations of our foreign subsidiaries into U.S. dollars using average rates of exchange in effect during the period, and we translate balance sheet accounts using exchange rates in effect at the end of the period. We record resulting currency translation adjustments in accumulated other comprehensive income, a component of stockholders’ equity, on our consolidated balance sheets. We record transaction gains and losses in our consolidated statements of comprehensive income.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding for the period adjusted for non-vested shares of restricted stock. The computation of diluted earnings per share is similar to basic earnings per share, except that the number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

New Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The standard 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. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted beginning after December 15, 2016. We are currently evaluating the impact that the standard will have on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting interest model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. ASU 2015-02 is effective beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The recognition and measurement guidance for debt issuance costs are not affected. Also in August 2015, the FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements” (“ASU 2015-15”), which clarifies the SEC staff’s position not objecting to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing such costs, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted ASU 2015-03 and 2015-15 for the year ended December 31, 2015. There were deferred financing costs of $56,696,000 and $51,373,000 as of December 31, 2015 and 2014, respectively, that are now classified within senior unsecured notes and secured debt on our Consolidated Balance Sheets.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). This guidance eliminated the requirement that an acquirer in a business combination account for adjustments it makes to the provisional amounts retrospectively. Instead, an acquirer recognizes these measurement-period adjustments during the

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

period in which they are determined, including the effect on earnings of any amounts the acquirer would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU 2015-16 is effective beginning January 1, 2016. We are continuing to evaluate this guidance; however, we do not expect its adoption to have a significant impact on our consolidated financial statements.

Reclassifications

Certain amounts in prior years have been reclassified to conform to current year presentation.

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 respective 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 property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 for information regarding our foreign currency policies. During the year ended December 31, 2015, we finalized our purchase price allocation of certain previously reported acquisitions and there were no material changes from those previously disclosed.

Triple-Net Activity

The following provides our purchase price allocations and other triple-net real property investment activity for the periods presented (in thousands):


		Year Ended December 31,
			2015(1)		2014		2013
Land and land improvements		$	142,854	$	141,387	$	54,596
Buildings and improvements			1,358,717		1,365,638		360,594
Acquired lease intangibles			4,408		19,196		-
Restricted cash			6		-		189
Receivables and other assets			194		4,895		1,020
	Total assets acquired(2)		1,506,179		1,531,116		416,399
Secured debt			(47,741)		(130,638)		(9,810)
Senior unsecured notes			-		(48,567)		-
Accrued expenses and other liabilities			(2,905)		(9,067)		(540)
	Total liabilities assumed		(50,646)		(188,272)		(10,350)
Noncontrolling interests			(13,465)		-		-
Non-cash acquisition related activity(3)			(38,355)		(3,453)		(12,207)
	Cash disbursed for acquisitions		1,403,713		1,339,391		393,842
Construction in progress additions			143,140		135,349		145,624
Less: Capitalized interest			(5,699)		(4,582)		(4,828)
Accruals	Foreign currency translation		(167)		421		-
	Non-cash related activity		-		(14,459)		-
Cash disbursed for construction in progress			137,274		116,729		140,796
Capital improvements to existing properties			45,293		18,901		35,912
	Total cash invested in real property, net of cash acquired	$	1,586,280	$	1,475,021	$	570,550

	(1) Includes acquisitions with an aggregate purchase price of $910,433,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
	(2) Excludes $16,572,000, $1,382,000, and $0 of cash acquired during the year ended December 31, 2015, 2014 and 2013, respectively.
	(3) For the year ended December 31, 2015, $23,288,000 relates to the acquisition of assets previously financed as real estate loans receivable and $6,743,000 previously financed as equity investments. For the year ended December 31, 2013, $12,204,000 relates to an asset swap transaction. Please refer to Notes 5 and 6.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Seniors Housing Operating Activity

Acquisitions of seniors housing operating properties are structured under RIDEA, which is described in Note 18. This structure results in the inclusion of all resident revenues and related property operating expenses from the operation of these qualified health care properties in our consolidated statements of comprehensive income.

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


		Year Ended December 31,
			2015(1)		2014		2013
Land and land improvements		$	218,581	$	57,534	$	445,152
Buildings and improvements			2,367,486		297,314		4,275,046
Acquired lease intangibles			187,512		12,983		396,444
Construction in progress			-		27,957		-
Restricted cash			11,798		804		44,427
Receivables and other assets			29,501		9,327		79,564
	Total assets acquired(2)		2,814,878		405,919		5,240,633
Secured debt			(871,471)		(19,834)		(1,275,245)
Senior unsecured notes			(24,621)		-		-
Accrued expenses and other liabilities			(81,778)		(17,802)		(96,709)
	Total liabilities assumed		(977,870)		(37,636)		(1,371,954)
Noncontrolling interests			(183,854)		(482)		(232,575)
Non-cash acquisition related activity(3)			-		-		(555,563)
Cash disbursed for acquisitions			1,653,154		367,801		3,080,541
Construction in progress additions			44,173		12,291		3,894
Less: Capitalized interest			(1,740)		(714)		(57)
Less: Foreign currency translation			(2,499)		(2,012)		-
Cash disbursed for construction in progress			39,934		9,565		3,837
Capital improvements to existing properties			104,308		86,803		72,258
	Total cash invested in real property, net of cash acquired	$	1,797,396	$	464,169	$	3,156,636

	(1) Includes an aggregate purchase price of $2,002,698,000 relating to acquisitions for which the allocation of the purchase price consideration is preliminary and subject to change.
	(2) Excludes $30,930,000, $9,060,000 and $92,148,000 of cash acquired during the years ended December 31, 2015, 2014 and 2013, respectively.
	(3) Represents Sunrise Senior Living loan and noncontrolling interest acquisitions during the first quarter of 2013.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Outpatient Medical Activity

Accrued contingent consideration related to certain outpatient medical acquisitions was $0, $27,374,000 and $26,187,000 as of December 31, 2015, 2014 and 2013, respectively. The following is a summary of our outpatient medical real property investment activity for the periods presented (in thousands):


		Year Ended December 31,
			2015(1)		2014		2013
Land and land improvements		$	176,689	$	63,129	$	14,515
Buildings and improvements			317,484		567,847		156,087
Acquired lease intangibles			45,226		46,661		9,432
Restricted cash			-		-		505
Receivables and other assets			939		-		344
	Total assets acquired(2)		540,338		677,637		180,883
Secured debt			(120,977)		(66,113)		(55,884)
Accrued expenses and other liabilities			(7,777)		(22,293)		(1,041)
	Total liabilities assumed		(128,754)		(88,406)		(56,925)
Noncontrolling interests			(76,535)		(39,987)		(386)
Non-cash acquisition related activity(3)			(27,025)		(45,836)		-
Cash disbursed for acquisitions			308,024		503,408		123,572
Construction in progress additions			70,560		99,878		123,494
Less: Capitalized interest			(1,286)		(1,854)		(1,815)
Accruals(4)			(1,921)		(26,437)		(18,752)
Cash disbursed for construction in progress			67,353		71,587		102,927
Capital improvements to existing properties			38,151		27,076		27,662
	Total cash invested in real property, net of cash acquired	$	413,528	$	602,071	$	254,161

	(1) Includes acquisitions with an aggregate purchase price of $91,829,000 for which the allocation of the purchase price consideration is preliminary and subject to change.
	(2) Excludes $5,522,000, $0 and $0 of cash acquired during the years ended December 31, 2015, 2014 and 2013, respectively.
	(3) Non-cash activity relates to the acquisition of a controlling interest in a portfolio of properties that was historically reported as an unconsolidated property investment for the year ended December 31, 2015. For the year ended December 31, 2014, the non-cash activity relates to an acquisition of assets previously financed as real estate loans. Please refer to Note 6 for additional information.
	(4) Represents non-cash consideration accruals for amounts to be paid in future periods relating to properties that converted in the periods noted above.

Construction Activity

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


			Year Ended
			December 31, 2015		December 31, 2014		December 31, 2013
	Development projects:
		Triple-net	$	104,844	$	71,569	$	133,181
		Seniors housing operating		19,869		-		-
		Outpatient medical		16,592		127,290		127,363
		Total development projects		141,305		198,859		260,544
	Expansion projects			38,808		24,804		26,395
Total construction in progress conversions			$	180,113	$	223,663	$	286,939

At December 31, 2015, future minimum lease payments receivable under operating leases (excluding properties in our seniors housing operating partnerships and excluding any operating expense reimbursements) are as follows (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2016	$	1,403,745
2017		1,402,087
2018		1,392,188
2019		1,350,736
2020		1,338,549
Thereafter		11,353,245
Totals	$	18,240,550

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):


		December 31, 2015		December 31, 2014
Assets:
	In place lease intangibles	$	1,179,537	$	988,290
	Above market tenant leases		67,529		65,684
	Below market ground leases		80,224		62,426
	Lease commissions		23,295		19,536
	Gross historical cost		1,350,585		1,135,936
	Accumulated amortization		(881,096)		(776,501)
	Net book value	$	469,489	$	359,435

	Weighted-average amortization period in years		13.4		17.7

Liabilities:
	Below market tenant leases	$	93,089	$	91,168
	Above market ground leases		7,907		7,859
	Gross historical cost		100,996		99,027
	Accumulated amortization		(46,048)		(40,891)
	Net book value	$	54,948	$	58,136

	Weighted-average amortization period in years		14.5		14.4

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


	Year Ended December 31,
	2015		2014		2013
Rental income related to above/below market tenant leases, net	$	(2,746)	$	509	$	748
Property operating expenses related to above/below market ground leases, net		(1,272)		(1,248)		(1,208)
Depreciation and amortization related to in place lease intangibles and lease commissions		(115,855)		(214,966)		(246,938)

The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Assets		Liabilities
2016	$	137,635	$	7,523
2017		81,166		6,812
2018		47,283		6,185
2019		25,582		5,775
2020		22,163		5,294
Thereafter		155,660		23,359
Totals	$	469,489	$	54,948

5. Dispositions, Assets Held for Sale and Discontinued Operations

We periodically sell properties for various reasons, including favorable market conditions or the exercise of tenant purchase options. Impairment of assets as reflected in our consolidated statements of comprehensive income relate to properties designated as held for sale and represent the charges necessary to adjust the carrying values to estimated fair values less costs to sell based on current sales price expectations. The following is a summary of our real property disposition activity for the periods presented (in thousands):


		Year Ended
		December 31, 2015		December 31, 2014		December 31, 2013
Real property dispositions:
	Triple-net	$	356,300	$	747,720	$	189,572
	Outpatient medical(1)		181,553		45,695		259,367
	Land parcels		5,724		-		-
	Total dispositions		543,577		793,415		448,939
Gain (loss) on sales of real property, net			280,387		153,522		49,138
Seller financing on sales of real property			-		-		(3,850)
Non-cash disposition activity			-		(35,872)		(12,204)
Proceeds from real property sales		$	823,964	$	911,065	$	482,023

	(1) Dispositions occurring in the year ended December 31, 2015 primarily relate to the disposition of an unconsolidated equity investment with Forest City Enterprises.

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” (ASU 2014-08”), 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):


		Year Ended
		December 31,
		2015		2014		2013
Revenues:
	Rental income	$	35,241	$	115,759	$	132,797
Expenses:
	Interest expense		5,503		24,046		26,660
	Property operating expenses		6,102		7,669		8,970
	Provision for depreciation		6,342		35,239		41,494
	Total expenses		17,947		66,954		77,124
Income (loss) from real estate dispositions, net		$	17,294	$	48,805	$	55,673

Discontinued Operations

We have reclassified the income and expenses attributable to all properties sold prior to or held for sale at January 1, 2014 to discontinued operations in accordance with ASU 2014-08. The following illustrates the reclassification impact as reported in our Consolidated Statements of Comprehensive Income as a result of classifying these properties as discontinued operations for the years presented (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


			Year Ended December 31,
		2015		2014		2013
Revenues:
	Rental income	$	-	$	881	$	18,377
Expenses:
	Interest expense		-		157		4,246
	Property operating expenses		-		-		3,396
	Provision for depreciation		-		-		8,160
Income (loss) from discontinued operations, net		$	-	$	724	$	2,575

6. Real Estate Loans Receivable

The following is a summary of our real estate loans receivable (in thousands):


		December 31,
	2015		2014
Mortgage loans	$	635,492	$	188,651
Other real estate loans		184,000		191,518
Totals	$	819,492	$	380,169

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


		Year Ended
		December 31, 2015						December 31, 2014						December 31, 2013

				Outpatient						Outpatient						Outpatient
		Triple-net		Medical		Totals		Triple-net		Medical		Totals		Triple-net		Medical		Totals
Advances on real estate loans receivable:
	Investments in new loans	$	530,497	$	-	$	530,497	$	61,730	$	60,902	$	122,632	$	41,180	$	4,095	$	45,275
	Draws on existing loans		65,614		2,611		68,225		59,420		20,155		79,575		71,315		4,319		75,634
	Sub-total		596,111		2,611		598,722		121,150		81,057		202,207		112,495		8,414		120,909
	Less: Seller financing on property sales		-		-		-		-		-		-		(3,850)		-		(3,850)
	Net cash advances on real estate loans		596,111		2,611		598,722		121,150		81,057		202,207		108,645		8,414		117,059
Receipts on real estate loans receivable:
	Loan payoffs		121,778		-		121,778		71,004		48,258		119,262		69,596		-		69,596
	Principal payments on loans		33,340		-		33,340		31,998		72		32,070		33,216		74		33,290
	Sub-total		155,118		-		155,118		103,002		48,330		151,332		102,812		74		102,886
	Less: Non-cash activity(1)		(23,288)		-		(23,288)		-		(45,836)		(45,836)		-		-		-
	Net cash receipts on real estate loans		131,830		-		131,830		103,002		2,494		105,496		102,812		74		102,886
Net cash advances (receipts) on real estate loans			464,281		2,611		466,892		18,148		78,563		96,711		5,833		8,340		14,173
Change in balance due to foreign currency translation			(4,281)		-		(4,281)		(2,852)		-		(2,852)		1,402		-		1,402
Net change in real estate loans receivable		$	436,712	$	2,611	$	439,323	$	15,296	$	32,727	$	48,023	$	7,235	$	8,340	$	15,575

(1) Represents an acquisition of assets previously financed as a real estate loan. Please see Note 3 for additional information.

The following is a summary of the allowance for losses on loans receivable for the periods presented (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Year Ended December 31,
	2015		2014		2013
Balance at beginning of year	$	-	$	-	$	-
Provision for loan losses		-		-		2,110
Charge-offs		-		-		(2,110)
Balance at end of year	$	-	$	-	$	-

The following is a summary of our loan impairments (in thousands):


		Year Ended December 31,
	2015		2014		2013
Balance of impaired loans at end of year	$	-	$	21,000	$	500
Allowance for loan losses		-		-		-
Balance of impaired loans not reserved	$	-	$	21,000	$	500
Average impaired loans for the year	$	10,500	$	10,750	$	2,365
Interest recognized on impaired loans(1)		-		757		206

(1) Represents interest recognized prior to placement on non-accrual status.

7. 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 properties have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our 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)	December 31, 2015		December 31, 2014
Triple-net	10% to 49%	$	36,351	$	31,511
Seniors housing operating	10% to 50%		499,537		539,147
Outpatient medical	36% to 49%		6,393		173,493
Total		$	542,281	$	744,151
(1) Excludes ownership of in-substance real estate.

At December 31, 2015, the aggregate unamortized basis difference of our joint venture investments of $158,204,000 is primarily attributable to appreciation of the underlying properties and transaction costs. This difference will be amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities. Summary combined financial information for our investments in unconsolidated entities held as of December 31, 2015 is as follows (dollars in thousands):


		December 31, 2015		December 31, 2014
Net real estate investments	$	1,359,034	$	2,107,201
Other assets		2,241,084		992,637
Total assets		3,600,118		3,099,838
Total liabilities		2,769,093		1,769,457
Redeemable noncontrolling interests		14,024		40,525
Total equity	$	817,001	$	1,289,856


	Year Ended December 31,
		2015		2014		2013
Total revenues	$	2,947,993	$	1,879,240	$	1,739,381
Net income (loss)		(40,116)		5,002		(15,265)

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Credit Concentration

We use net operating income from continuing operations (“NOI”) as our credit concentration metric. See Note 17 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the year ended December 31, 2015, excluding our share of NOI in unconsolidated entities (dollars in thousands):


		Number of	Total		Percent of
Concentration by relationship:(1)		Properties	NOI		NOI(2)
	Genesis Healthcare	187	$	371,170	17%
	Sunrise Senior Living(3)	148		299,697	13%
	Brookdale Senior Living	148		166,792	7%
	Revera	97		109,778	5%
	Benchmark Senior Living	50		98,887	4%
	Remaining portfolio	796		1,191,245	54%
	Totals	1,426	$	2,237,569	100%

	(1) Genesis Healthcare is in our triple-net segment. Sunrise Senior Living and Revera are in our seniors housing operating segment. Brookdale Senior Living and Benchmark Senior Living are in both our triple-net and seniors housing operating segments.
	(2) Investments with our top five relationships comprised 49% of NOI in 2014.
	(3) For the year ended December 31, 2015, we recognized $948,347,000 of revenue from Sunrise Senior Living.

9. Borrowings Under Credit Facilities and Related Items

At December 31, 2015, we had a primary unsecured credit facility with a consortium of 28 banks that includes a $2,500,000,000 unsecured revolving credit facility, 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 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 $500,000,000 in alternate currencies (none outstanding at December 31, 2015). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (1.347% at December 31, 2015). The applicable margin is based on certain of our debt ratings and was 0.925% at December 31, 2015. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on certain of our debt ratings and was 0.15% at December 31, 2015. The primary unsecured credit facility is scheduled to expire October 31, 2018 and can be extended for an additional year at our option.

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


		Year Ended December 31,
		2015		2014		2013
Balance outstanding at year end(1)		$	835,000	$	-	$	130,000
Maximum amount outstanding at any month end		$	835,000	$	637,000	$	1,019,050
Average amount outstanding (total of daily
	principal balances divided by days in period)	$	452,644	$	207,452	$	488,842
Weighted-average interest rate (actual interest
	expense divided by average borrowings outstanding)		1.17%		1.50%		1.45%

(1) As of December 31, 2015, letters of credit in the aggregate amount of $54,925,000 have been issued which reduce the available borrowing capacity on the primary unsecured credit facility.

10. Senior Unsecured Notes and Secured Debt

We may repurchase, redeem or refinance convertible and non-convertible 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 non-convertible 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 December 31, 2015, the annual principal payments due on these

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

debt obligations were as follows (in thousands):


	Senior		Secured
	Unsecured Notes(1,2)		Debt (1,3)		Totals
2016	$	400,000	$	547,325	$	947,325
2017		450,000		476,661		926,661
2018		450,000		650,763		1,100,763
2019(4,5)		1,280,649		380,588		1,661,237
2020(6)		666,779		173,833		840,612
Thereafter(7,8,9)		5,398,330		1,249,037		6,647,367
Totals	$	8,645,758	$	3,478,207	$	12,123,965

(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the consolidated balance sheet.
(2) Annual interest rates range from 1.4% to 6.5%.
(3) Annual interest rates range from 1.0% to 7.98%. Carrying value of the properties securing the debt totaled $6,285,511,000 at December 31, 2015.
(4) On July 25, 2014, we refinanced the funding on a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $180,649,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2015). The loan matures on October 31, 2018 (with an option to extend for an additional year at our discretion) and bears interest at the Canadian Dealer Offered Rate plus 97.5 basis points (1.8% at December 31, 2015).
(5) On July 25, 2014, we refinanced the funding on a $500,000,000 unsecured term credit facility. The loan matures on October 31, 2018 (with an option to extend for one additional year at our discretion) and bears interest at LIBOR plus 97.5 basis points (1.4% at December 31, 2015).
(6) In November 2015, one of our wholly-owned subsidiaries issued and we guaranteed $300,000,000 of Canadian-denominated 3.35% senior unsecured notes due 2020 (approximately $216,779,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2015).
(7) On November 20, 2013, we completed funding on £550,000,000 (approximately $811,030,000 based on the Sterling/U.S. Dollar exchange rate on December 31, 2015) of 4.8% senior unsecured notes due 2028.
(8) On November 25, 2014, we completed funding on £500,000,000 (approximately $737,300,000 based on the Sterling/U.S. Dollar exchange rate on December 31, 2015) of 4.5% senior unsecured notes due 2034.
(9) In May 2015, we issued $750,000,000 of 4.0% senior unsecured notes due 2025. In October 2015, we issued an additional $500,000,000 of these notes under a re-opening of the offer.

The following is a summary of our senior unsecured note principal activity during the periods presented (dollars in thousands):


	Year Ended
	December 31, 2015			December 31, 2014			December 31, 2013
			Weighted Avg.			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate

Beginning balance	$	7,817,154	4.385%	$	7,421,707	4.395%	$	5,894,403	4.675%
Debt issued		1,475,540	3.901%		838,804	4.572%		2,036,930	3.824%
Debt assumed		24,621	6.000%		-	0.000%		-	0.000%
Debt extinguished		(300,000)	6.200%		(298,567)	5.855%		(300,000)	6.000%
Debt redeemed		(240,249)	3.303%		(59,143)	3.000%		(219,295)	3.000%
Foreign currency		(131,308)	3.966%		(85,647)	4.222%		9,669	3.993%
Ending balance	$	8,645,758	4.237%	$	7,817,154	4.385%	$	7,421,707	4.395%

During the twelve months ended December 31, 2010, we issued $494,403,000 of 3.00% senior unsecured convertible notes due December 2029. The notes are convertible, in certain circumstances, into cash and, if applicable, shares of common stock at an initial conversion rate of 19.5064 shares per $1,000 principal amount of notes, which represents an initial conversion price of $51.27 per share. In general, upon conversion, the holder of each note would receive, in respect of the conversion value of such note, cash up to the principal amount of such note and common stock for the note’s conversion value in excess of such principal amount. In addition, on each of December 1, 2019 and December 1, 2024, holders may require us to purchase all or a portion of their notes at a purchase price in cash equal to 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest. The notes are bifurcated into a debt component and an equity component since they may be settled in cash upon conversion. The value of the debt component is based upon the estimated fair value of a similar debt instrument without the conversion feature at the time of issuance. The difference between the contractual principal on the debt and the value allocated to the debt of $29,925,000 was recorded as an equity component and represents the conversion feature of the instrument. The excess of the contractual principal amount of the debt over its estimated fair value is amortized to interest expense using the effective interest method over the period used to estimate the fair value. During the year ended December 31, 2015, we received notice of conversion from holders of $215,965,000 of the senior unsecured convertible notes, representing the remaining balance. These notes were converted into 366,211 shares of common stock and we recognized a loss on extinguishment of $5,881,000, which is reflected on the consolidated statement of comprehensive income.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):


	Year Ended
		December 31, 2015		December 31, 2014			December 31, 2013
			Weighted Avg.			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	2,941,765	4.940%	$	3,010,711	5.095%	$	2,311,586	5.140%
Debt issued		228,685	2.776%		109,503	3.374%		89,208	4.982%
Debt assumed		1,007,482	3.334%		204,949	4.750%		1,290,858	4.159%
Debt extinguished		(506,326)	4.506%		(279,559)	4.824%		(614,375)	3.730%
Principal payments		(67,064)	4.801%		(62,280)	4.930%		(56,205)	5.248%
Foreign currency		(126,335)	3.834%		(41,559)	3.811%		(10,361)	4.013%
Ending balance	$	3,478,207	4.440%	$	2,941,765	4.940%	$	3,010,711	5.095%

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 December 31, 2015, we were in compliance with all of the covenants under our debt agreements.

11. Derivative Instruments

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to manage the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. In addition, non-U.S. investments expose us to the potential losses associated with adverse changes in foreign currency to U.S. Dollar exchange rates. We have elected to manage these risks through the use of forward exchange contracts and issuing debt in the foreign currency.

I__nterest Rate Swap Contracts and 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 reported 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. Approximately $2,942,000 of gains, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months.

Foreign Currency Hedges

For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. During the year ended December 31, 2015, we settled certain net investment hedges generating cash proceeds of $106,360,000. The balance of the cumulative translation adjustment will be reclassified to earnings when the hedged investment is sold or substantially liquidated.

The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		December 31, 2015		December 31, 2014
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	1,175,000	$	900,000
Denominated in Pounds Sterling	£	550,000	£	350,000

Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars	$	250,000	$	250,000
Denominated in Pounds Sterling	£	1,050,000	£	1,050,000

Derivatives designated as cash flow hedges
Denominated in U.S. Dollars	$	57,000	$	57,000
Denominated in Canadian Dollars	$	72,000	$	58,000
Denominated in Pounds Sterling	£	60,000	£	40,000

Derivative instruments not designated:
Denominated in Canadian Dollars	$	47,000	$	12,000

The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):


		Year Ended
	Location	December 31, 2015		December 31, 2014		December 31, 2013
Gain (loss) on forward exchange contracts recognized in income	Gain (loss) on derivatives, net	$	-	$	1,495	$	(4,470)

Gain (loss) on forward exchange contracts recognized in income	Interest expense		14,474		-		-

Loss (gain) on option exercise(1)	Gain (loss) on derivatives, net		(58,427)		-		-

Gain (loss) on forward exchange contracts and term loans designated as net investment hedge recognized in OCI	OCI		298,116		103,140		(28,244)

(1) In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature.

12. Commitments and Contingencies

At December 31, 2015, we had nine outstanding letter of credit obligations totaling $96,096,000 and expiring between 2016 and 2018. At December 31, 2015, we had outstanding construction in process of $258,968,000 for leased properties and were committed to providing additional funds of approximately $525,588,000 to complete construction. At December 31, 2015, we had contingent purchase obligations totaling $24,088,000. 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 December 31, 2015, we had operating lease obligations of $990,027,000 relating to

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

certain ground leases and Company office space. Regarding the 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 December 31, 2015, aggregate future minimum rentals to be received under these noncancelable subleases totaled $26,445,000.

At December 31, 2015, future minimum lease payments due under operating and capital leases are as follows (in thousands):


	Operating Leases		Capital Leases(1)
2016	$	15,543	$	4,732
2017		15,624		4,732
2018		15,691		4,679
2019		15,665		4,333
2020		14,928		4,173
Thereafter		912,576		75,920
Totals	$	990,027	$	98,569

(1) Amounts above represent principal and interest obligations under capital lease arrangements. Related assets with a gross value of $167,324,000 and accumulated depreciation of $20,555,000 are recorded in real property.

13. Stockholders’ Equity

The following is a summary of our stockholder’s equity capital accounts as of the dates indicated:


		December 31, 2015	December 31, 2014
Preferred Stock, $1.00 par value:
	Authorized shares	50,000,000	50,000,000
	Issued shares	25,875,000	25,875,000
	Outstanding shares	25,875,000	25,875,000

Common Stock, $1.00 par value:
	Authorized shares	700,000,000	700,000,000
	Issued shares	355,594,373	329,487,615
	Outstanding shares	354,777,670	328,790,066

Preferred Stock. The following is a summary of our preferred stock activity during the periods presented:


	Year Ended
	December 31, 2015		December 31, 2014		December 31, 2013
		Weighted Avg.		Weighted Avg.		Weighted Avg.
	Shares	Dividend Rate	Shares	Dividend Rate	Shares	Dividend Rate

Beginning balance	25,875,000	6.500%	26,108,236	6.496%	26,224,854	6.493%
Shares converted	-	0.000%	(233,236)	6.000%	(116,618)	6.000%
Ending balance	25,875,000	6.500%	25,875,000	6.500%	26,108,236	6.496%

During the three months ended December 31, 2010, we issued 349,854 shares of 6.00% Series H Cumulative Convertible and Redeemable Preferred Stock in connection with a business combination. During the years ended December 31, 2013 and 2014, all shares were converted into common stock, leaving zero shares outstanding.

During the three months ended March 31, 2011, we issued 14,375,000 of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. These shares have a liquidation value of $50.00 per share. Dividends are payable quarterly in arrears. The preferred stock is not redeemable by us. The preferred shares are convertible, at the holder’s option, into 0.8460 shares of common stock (equal to an initial conversion price of approximately $59.10).

During the three months ended March 31, 2012, we issued 11,500,000 of 6.50% Series J Cumulative Redeemable Preferred Stock. Dividends are payable quarterly in arrears. The preferred stock, which has no stated maturity, may be redeemed by us at a redemption price of $25.00 per share, plus accrued and unpaid dividends on such shares to the redemption date, on or after March 7, 2017.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Common Stock. The following is a summary of our common stock issuances during the periods indicated (dollars in thousands, except per share amounts):


	Shares Issued		Average Price		Gross Proceeds		Net Proceeds

May 2013 public issuance	23,000,000	$	73.50	$	1,690,500	$	1,630,281
2013 Dividend reinvestment plan issuances	3,429,928		62.78		215,346		215,346
2013 Option exercises	213,724		42.16		9,010		9,010
2013 Senior note conversions	988,007				-		-
2013 Preferred stock conversions	116,618				-		-
2013 Equity issued in acquisition of noncontrolling interest	1,108,917				-		-
2013 Totals	28,857,194			$	1,914,856	$	1,854,637

June 2014 public issuance	16,100,000	$	62.35	$	1,003,835	$	968,517
September 2014 public issuance	17,825,000		63.75		1,136,344		1,095,465
2014 Dividend reinvestment plan issuances	4,122,941		62.35		257,055		257,055
2014 Option exercises	498,549		45.79		22,831		22,831
2014 Preferred stock conversions	233,236				-		-
2014 Stock incentive plans, net of forfeitures	188,147				-		-
2014 Senior note conversions	258,542				-		-
2014 Totals	39,226,415			$	2,420,065	$	2,343,868

February 2015 public issuance	19,550,000	$	75.50	$	1,476,025	$	1,423,935
2015 Dividend reinvestment plan issuances	4,024,169		67.72		272,531		272,531
2015 Option exercises	249,054		47.35		11,793		11,793
2015 Equity Shelf Program issuances	696,070		69.23		48,186		47,463
2015 Stock incentive plans, net of forfeitures	137,837				-		-
2015 Senior note conversions	1,330,474				-		-
2015 Totals	25,987,604			$	1,808,535	$	1,755,722

During the twelve months ended December 31, 2013, we acquired the remaining 20% noncontrolling interest in an existing partnership for $91,000,000 which consisted of $23,247,000 of cash and 1,108,917 shares of common stock. In connection with the acquisition, we incurred $2,732,000 of transaction costs, which we have included as a reduction to additional paid in capital.

Dividends. The increase in dividends is primarily attributable to increases in our common shares outstanding as described above. Please refer to Notes 2 and 18 for information related to federal income tax of dividends. The following is a summary of our dividend payments (in thousands, except per share amounts):


	Year Ended
	December 31, 2015				December 31, 2014				December 31, 2013
	Per Share		Amount		Per Share		Amount		Per Share		Amount

Common Stock	$	3.30000	$	1,144,727	$	3.18000	$	969,661	$	3.06000	$	839,939
Series H Preferred Stock		-		-		0.00794		1		2.85840		930
Series I Preferred Stock		3.25000		46,719		3.25000		46,719		3.25000		46,719
Series J Preferred Stock		1.62510		18,687		1.62510		18,688		1.62510		18,687
Totals			$	1,210,133			$	1,035,069			$	906,275

Accumulated Other Comprehensive Income. The following is a summary of accumulated other comprehensive income/(loss) for the periods presented (in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Unrecognized gains (losses) related to:
		Foreign Currency Translation		Equity Investments		Actuarial losses		Cash Flow Hedges		Total
Balance at December 31, 2014	$	(74,770)	$	-	$	(1,589)	$	(650)	$	(77,009)
Other comprehensive income before reclassification adjustments		(10,714)		-		246		(2,626)		(13,094)
Reclassification amount to net income		-		-		-		1,860 (1)		1,860
Net current-period other comprehensive income		(10,714)		-		246		(766)		(11,234)
Balance at December 31, 2015	$	(85,484)	$	-	$	(1,343)	$	(1,416)	$	(88,243)

Balance at December 31, 2013	$	(17,631)	$	(389)	$	(1,452)	$	(5,059)	$	(24,531)
Other comprehensive income before reclassification adjustments		(56,611)		389		(137)		2,610		(53,749)
Reclassification amount to net income		(528)		-		-		1,799 (1)		1,271
Net current-period other comprehensive income		(57,139)		389		(137)		4,409		(52,478)
Balance at December 31, 2014	$	(74,770)	$	-	$	(1,589)	$	(650)	$	(77,009)

(1) Please see Note 11 for additional information.

Other Equity. Other equity consists of accumulated option compensation expense, which represents the amount of amortized compensation costs related to stock options awarded to employees and directors.

14. Stock Incentive Plans

Our Amended and Restated 2005 Long-Term Incentive Plan (“2005 Plan”) authorizes up to 6,200,000 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 2005 Plan. The 2005 Plan allows for the issuance of, among other things, stock options, restricted stock, deferred stock 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.

Under our long-term incentive plan, certain restricted stock awards are performance based. We will grant a target number of restricted stock units, with the ultimate award determined by the total shareholder return and operating performance metrics, measured in each case over a measurement period of three years. One third of the award will vest immediately at the end of the three year performance period, one third will vest a year after the performance period, and the remaining one third will vest two years after the performance period. Compensation expense for these performance grants is measured based on the probability of achievement of certain performance goals and is recognized over both the performance period and vesting period. For the portion of the grant for which the award is determined by the operating performance metrics, the estimated compensation cost was based on the grant date closing price and management’s estimate of corporate achievement for the financial metrics. If the estimated number of performance based restricted stock to be earned changes, an adjustment will be recorded to recognize the accumulated difference between the revised and previous estimates. For the portion of the grant determined by the total shareholder return, management used a Monte Carlo model to assess the compensation cost. The expected term represents the period from the grant date to the end of the three-year performance period. The estimated compensation cost was derived using the following assumptions: risk free rates over the life of the plan ranging from 0.16% to 1.16%; estimated volatility figures ranging from 13.64% to 42.75% over the life of the plan using 50% historical volatility and 50% implied volatility; and dividend yield of 4.818%.

The following table summarizes compensation expense recognized for the periods presented (in thousands):


		Year Ended December 31,
	2015		2014		2013
Stock options	$	698	$	912	$	1,113
Restricted stock		30,146		31,163		19,064
	$	30,844	$	32,075	$	20,177

Stock Options

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have not granted stock options since the year ended December 31, 2012 but some remain outstanding. As of December 31, 2015, there was $300,000 of total unrecognized compensation expense related to unvested stock options that is expected to be recognized over a weighted-average period of one year. Stock options outstanding at December 31, 2015 have an aggregate intrinsic value of $8,476,000.

Restricted Stock

The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant and is amortized over the vesting periods. As of December 31, 2015, there was $24,894,000 of total unrecognized compensation expense related to unvested restricted stock that is expected to be recognized over a weighted-average period of three years. The following table summarizes information about non-vested restricted stock incentive awards as of and for the year ended December 31, 2015:


	Restricted Stock
	Number of	Weighted-Average
	Shares	Grant Date
	(000's)	Fair Value
Non-vested at December 31, 2014	554	$	56.92
Vested	(306)		61.09
Granted	449		66.93
Terminated	(59)		66.09
Non-vested at December 31, 2015	638	$	62.00

15. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):


		Year Ended December 31,
		2015		2014		2013
Numerator for basic and diluted earnings
	per share - net income attributable to
	common stockholders	$	818,344	$	446,745	$	78,714

Denominator for basic earnings per
	share: weighted-average shares		348,240		306,272		276,929
Effect of dilutive securities:
	Employee stock options		143		188		226
	Non-vested restricted shares		535		500		457
	Redeemable shares		310		-		-
	Convertible senior unsecured notes		196		787		1,149
Dilutive potential common shares			1,184		1,475		1,832
Denominator for diluted earnings per
	share: adjusted-weighted average shares		349,424		307,747		278,761

Basic earnings per share		$	2.35	$	1.46	$	0.28
Diluted earnings per share		$	2.34	$	1.45	$	0.28

Stock options outstanding were anti-dilutive for the years ended December 31, 2015, 2014 and 2013. The Series H Cumulative Convertible and Redeemable Preferred Stock and the Series I Cumulative Convertible Perpetual Preferred Stock were excluded from the calculations as the effect of the conversions also were anti-dilutive.

16. Disclosure about Fair Value of Financial Instruments

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 two and level three inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents — The carrying amount approximates fair value.

Available-for-sale Equity Investments — Available-for-sale equity investments are recorded at their fair value based on level one publicly available trading prices.

Borrowings Under Primary Unsecured Credit Facility — The carrying amount of the primary unsecured credit facility 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 one publicly available trading prices.

Secured Debt — The fair value of fixed rate secured debt is estimated using level two 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.

Interest Rate Swap Agreements — Interest rate swap agreements are recorded in other assets or other liabilities on the balance sheet at fair market value. Fair market value is estimated using level two inputs by utilizing pricing models that consider forward yield curves and discount rates.

Foreign Currency Forward Contracts — Foreign currency forward contracts are recorded in other assets or other liabilities on the balance sheet at fair market value. Fair market value is determined using level two inputs by estimating the future value of the currency pair based on existing exchange rates, comprised 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.

Redeemable OP Unitholder Interests — The fair value of our redeemable operating partnership (“OP”) 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):


		December 31, 2015				December 31, 2014
		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value
Financial Assets:
	Mortgage loans receivable	$	635,492	$	663,501	$	188,651	$	194,935
	Other real estate loans receivable		184,000		185,693		191,518		195,375
	Available-for-sale equity investments		22,779		22,779		-		-
	Cash and cash equivalents		360,908		360,908		473,726		473,726
	Foreign currency forward contracts		129,520		129,520		57,087		57,087

Financial Liabilities:
	Borrowings under unsecured lines of credit arrangements	$	835,000	$	835,000	$	-	$	-
	Senior unsecured notes		8,548,055		9,020,529		7,729,405		8,613,702
	Secured debt		3,509,142		3,678,564		2,963,186		3,053,067
	Foreign currency forward contracts		-		-		1,495		1,495

Redeemable OP unitholder interests		$	112,029	$	112,029	$	46,722	$	46,722

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. The guidance describes three levels of inputs that may be used to measure fair value:

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Please see Note 2 for additional information.

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.

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.


	Fair Value Measurements as of December 31, 2015
	Total		Level 1		Level 2		Level 3
Available-for-sale equity investments(1)	$	22,779	$	22,779	$	-	$	-
Foreign currency forward contracts(2)		129,520		-		129,520		-
Redeemable OP unitholder interests		112,029		-		112,029		-
Totals	$	241,549	$	-	$	241,549	$	-

(1) Unrealized gain or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date. During 2015, we recognized an other than temporary impairment charge of $35,648,000 on the Genesis Healthcare stock investment which was recorded through other expense. Also see Note 11 for details related to the gain on the derivative asset originally recognized.
(2) Please see Note 11 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 in business combinations (see Note 3) and asset impairments (see Note 5 for impairments of real property and Note 6 for impairments of loans receivable). 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 reside 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 secured debt assumed in business combinations using current interest rates at which similar borrowings could be obtained on the transaction date.

17. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our four operating segments: triple-net, seniors housing operating, outpatient medical and life science. During the year ended December 31, 2015, we changed the names of our seniors housing triple-net segment to triple-net and our medical facilities segment to outpatient medical.

Our triple-net properties include long-term/post-acute care facilities, hospitals, assisted living facilities, independent living/continuing care retirement communities, care homes (United Kingdom), independent support living facilities (Canada), care homes with nursing (United Kingdom) and combinations thereof. Under the triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our seniors housing operating properties include the seniors housing communities referenced above that are owned and/or operated through RIDEA structures (see Notes 3 and 18).

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our outpatient medical properties include outpatient medical buildings and life science buildings which are aggregated into our outpatient medical reportable segment. Our outpatient medical buildings are typically leased to multiple tenants and generally require a certain level of property management. During the year ended December 31, 2015, we disposed of our life science investments.

We evaluate performance based upon 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 because 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). 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.

Summary information for the reportable segments (which excludes unconsolidated entities) during the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):


Year Ended December 31, 2015:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	1,119,322	$	-	$	479,626	$	-	$	1,598,948
Resident fees and services		-		2,158,031		-		-		2,158,031
Interest income		74,108		4,180		5,853		-		84,141
Other income		6,871		6,060		4,684		1,091		18,706
Total revenues		1,200,301		2,168,271		490,163		1,091		3,859,826

Property operating expenses		-		1,467,009		155,248		-		1,622,257
Net operating income from continuing operations		1,200,301		701,262		334,915		1,091		2,237,569

Reconciling items:
Interest expense		30,288		147,832		28,822		285,227		492,169
(Loss) gain on derivatives, net		(58,427)		-		-		-		(58,427)
Depreciation and amortization		294,484		351,733		180,023		-		826,240
General and administrative		-		-		-		147,416		147,416
Transaction costs		53,254		54,966		2,706		-		110,926
(Loss) gain on extinguishment of debt, net		10,095		(195)		-		24,777		34,677
Impairment of assets		2,220		-		-		-		2,220
Other expenses		35,648		-		-		10,583		46,231
Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities		832,739		146,926		123,364		(466,912)		636,117
Income tax expense		(4,244)		986		245		(3,438)		(6,451)
(Loss) income from unconsolidated entities		8,260		(32,672)		2,908		-		(21,504)
Income (loss) from continuing operations		836,755		115,240		126,517		(470,350)		608,162
Gain (loss) on real estate dispositions, net		86,261		-		194,126		-		280,387
Net income (loss)	$	923,016	$	115,240	$	320,643	$	(470,350)	$	888,549

Total assets	$	12,692,054	$	11,519,902	$	4,727,227	$	84,662	$	29,023,845

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year Ended December 31, 2014:		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	992,638	$	-	$	413,129	$	-	$	1,405,767
Resident fees and services		-		1,892,237		-		-		1,892,237
Interest income		32,255		2,119		3,293		-		37,667
Other income		2,973		3,215		1,010		677		7,875
Total revenues		1,027,866		1,897,571		417,432		677		3,343,546

Property operating expenses		732		1,266,308		136,318		-		1,403,358
Net operating income from continuing operations		1,027,134		631,263		281,114		677		1,940,188

Reconciling items:
Interest expense		38,460		113,099		32,904		296,576		481,039
(Loss) gain on derivatives, net		(1,770)		275		-		-		(1,495)
Depreciation and amortization		273,296		418,199		152,635		-		844,130
General and administrative		-		-		-		142,943		142,943
Transaction costs		45,146		16,880		7,512		-		69,538
(Loss) gain on extinguishment of debt, net		98		383		405		8,672		9,558
Other expenses		8,825		1,437		-		-		10,262
Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities		663,079		80,990		87,658		(447,514)		384,213
Income tax expense		6,141		(3,047)		(1,827)		-		1,267
(Loss) income from unconsolidated entities		5,423		(38,204)		5,355		-		(27,426)
Income (loss) from continuing operations		674,643		39,739		91,186		(447,514)		358,054
Income (loss) from discontinued operations		7,135		-		-		-		7,135
Gain (loss) on real estate dispositions, net		146,205		-		906				147,111
Net income (loss)	$	827,983	$	39,739	$	92,092	$	(447,514)	$	512,300

Total assets	$	10,918,946	$	9,519,833	$	4,464,857	$	59,287	$	24,962,923

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Year Ended December 31, 2013		Triple-net		Seniors Housing Operating		Outpatient Medical		Non-segment / Corporate		Total
Rental income	$	866,138	$	-	$	361,451	$	-	$	1,227,589
Resident fees and services		-		1,616,290		-		-		1,616,290
Interest income		28,214		757		3,692		-		32,663
Other income		1,504		355		1,911		296		4,066
Total revenues		895,856		1,617,402		367,054		296		2,880,608

Property operating expenses		1,235		1,089,239		116,339		-		1,206,813
Net operating income from continuing operations		894,621		528,163		250,715		296		1,673,795

Reconciling items:
Interest expense		23,322		92,148		36,823		306,067		458,360
Loss (gain) on derivatives, net		4,877		(407)		-		-		4,470
Depreciation and amortization		249,913		478,007		137,880		-		865,800
General and administrative		-		-		-		108,318		108,318
Transaction costs		24,426		107,066		1,909		-		133,401
Loss (gain) on extinguishment of debt, net		40		(3,372)		-		2,423		(909)
Provision for loan losses		2,110		-		-		-		2,110
Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities		589,933		(145,279)		74,103		(416,512)		102,245
Income tax expense		(1,817)		(5,337)		(270)		(67)		(7,491)
(Loss) income from unconsolidated entities		5,035		(22,695)		9,473		-		(8,187)
Income from continuing operations		593,151		(173,311)		83,306		(416,579)		86,567
Income (loss) from discontinued operations		57,742		-		(6,029)		-		51,713
Net income (loss)	$	650,893	$	(173,311)	$	77,277	$	(416,579)	$	138,280

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):


		Year Ended
		December 31, 2015			December 31, 2014			December 30, 2013
Revenues:		Amount	%		Amount	%		Amount	%
United States	$	3,133,327	81.2%	$	2,801,474	83.8%	$	2,489,196	86.4%
International		726,499	18.8%		542,072	16.2%		391,412	13.6%
Total	$	3,859,826	100.0%	$	3,343,546	100.0%	$	2,880,608	100.0%


		As of
		December 31, 2015			December 31, 2014
Assets:		Amount	%		Amount	%
United States	$	25,995,793	89.6%	$	19,855,076	79.5%
International		3,028,052	10.4%		5,107,847	20.5%
Total	$	29,023,845	100.0%	$	24,962,923	100.0%

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. 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 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.

Cash distributions paid to common stockholders, for federal income tax purposes, are as follows for the periods presented:


			Year Ended December 31,
			2015		2014		2013
Per Share:
	Ordinary income	$	1.9134	$	1.7861	$	1.4928
	Qualified dividend		0.0529		-		-
	Return of capital		0.0503		0.8368		1.4176
	Long-term capital gains		0.9352		0.1638		0.0448
	Unrecaptured section 1250 gains		0.3482		0.3933		0.1048
	Totals	$	3.3000	$	3.1800	$	3.0600

Our consolidated provision for income taxes is as follows for the periods presented (dollars in thousands):


		Year Ended December 31,
		2015		2014		2013
Current	$	10,177	$	2,672	$	12,389
Deferred		(3,726)		(3,939)		(4,898)
Totals	$	6,451	$	(1,267)	$	7,491

REITs generally are not subject to U.S. federal income taxes on that portion of REIT taxable income or capital gain that is distributed to stockholders. For the tax year ended December 31, 2015, as a result of acquisitions located in Canada and the United Kingdom, we were subject to foreign income taxes under the respective tax laws of these jurisdictions.

The provision for income taxes for the year ended December 31, 2015 primarily relates to state taxes, foreign taxes, and taxes based on income generated by entities that are structured as taxable REIT subsidiaries. During 2014, we established certain new wholly-owned direct and indirect subsidiaries in Luxembourg and Jersey and transferred interests in certain foreign investments into this new holding company structure. The new 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 new holding company structure and all of the subsidiary entities in the structure are treated as disregarded entities of the Company for U.S. federal income tax purposes. The Company will reflect current and deferred tax liabilities for any such withholding taxes incurred as a result of this holding company structure in its consolidated financial statements.

For the tax years ended December 31, 2015, 2014 and 2013, the foreign tax provision/(benefit) amount included in the consolidated provision for income taxes was $7,385,000, ($6,069,000) and ($484,000), respectively.

A reconciliation of income tax expense, which is computed by applying the federal corporate tax rate for the years ended December 31, 2015, 2014 and 2013, to the income tax provision/(benefit) is as follows for the periods presented (dollars in thousands):

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


		Year Ended December 31,
		2015		2014		2013
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes	$	313,250	$	178,862	$	51,020
Increase / (decrease) in valuation allowance(1)		13,759		9,133		18,444
Tax at statutory rate on earnings not subject to federal income taxes		(319,832)		(189,070)		(88,762)
Foreign permanent depreciation		7,500		4,383		22,313
Other differences		(8,226)		(4,575)		4,476
Totals	$	6,451	$	(1,267)	$	7,491

(1) Excluding purchase price accounting.

Each TRS and foreign entity subject to income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of taxable and deductible temporary differences, as well as tax attributes, are summarized as follows for the periods presented (dollars in thousands):


		Year Ended December 31,
		2015		2014		2013
Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets and the treatment of interests and certain costs	$	(30,564)	$	(1,020)	$	(34,236)
Operating loss and interest deduction carryforwards		75,455		47,528		67,215
Expense accruals and other		6,259		26,191		19,309
Valuation allowance		(98,966)		(85,207)		(71,955)
Totals	$	(47,816)	$	(12,508)	$	(19,667)

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. As required under the provisions of ASC 740, we apply the concepts on an entity-by-entity, jurisdiction-by-jurisdiction basis. With respect to the analysis of certain entities in multiple jurisdictions, a significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2015. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of the evaluations performed as required by the codification, valuation allowances totaling $98,966,000 were recorded on U.S. taxable REIT subsidiaries as well as entities in other jurisdictions to limit the deferred tax assets to the amount that we believe is more likely that not realizable. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present (and additional weight may be given to subjective evidence such as our projections for growth). The valuation allowance rollforward is summarized as follows for the periods presented (dollars in thousands):


		Year Ended December 31,
		2015		2014		2013
Beginning balance	$	85,207	$	71,955	$	12,199
Additions:
Purchase price accounting		-		4,119		41,312
Expense		13,759		9,133		18,444
Ending balance	$	98,966	$	85,207	$	71,955

As a result of certain acquisitions, we are subject to corporate level taxes for any related asset dispositions that may occur during the five-year period immediately after such assets were owned by a C corporation (“built-in gains tax”). The amount of income potentially subject to this special corporate level tax is generally equal to the lesser of (a) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (b) the actual amount of gain. Some but not all gains recognized during this period of time could be offset by available net operating losses and capital loss carryforwards. During the year ended December 31, 2015, we acquired certain additional assets with built-in gains as of the date of acquisition that could be subject to the built-in

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

gains tax if disposed of prior to the expiration of the applicable five-year period. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such properties and available tax planning strategies.

Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-length basis to a TRS if the property is operated on behalf of such subsidiary 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 consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in a TRS. Certain net operating loss carryforwards could be utilized to offset taxable income in future years.

Given the applicable statute of limitations, we generally are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2012 and subsequent years. The statute of limitations may vary in the states in which we own properties or conduct business. We do not expect to be subject to audit by state taxing authorities for any year prior to the year ended December 31, 2009. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to May 2012 related to entities acquired or formed in connection with acquisitions, and by HM Revenue & Customs for periods subsequent to August 2012 related to entities acquired or formed in connection with acquisitions.

At December 31, 2015, we had a net operating loss (“NOL”) carryforward related to the REIT of $443,197,000. Due to our uncertainty regarding the realization of certain deferred tax assets, we have not recorded a deferred tax asset related to NOLs generated by the REIT. These amounts can be used to offset future taxable income (and/or taxable income for prior years if an audit determines that tax is owed), if any. The REIT will be entitled to utilize NOLs and tax credit carryforwards only to the extent that REIT taxable income exceeds our deduction for dividends paid. The NOL carryforwards will expire through 2035.

At December 31, 2015, and 2014, we had a net operating loss carryforward related to Canadian entities of $78,680,000, and $32,085,000, respectively. These Canadian losses have a 20-year carryforward period. At December 31, 2015 and 2014, we had a net operating loss carryforward related to United Kingdom entities of $179,598,000 and $177,079,000, respectively. These United Kingdom losses do not have a finite carryforward period.

19. Retirement Arrangements

We have a Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined benefit pension plan, which provides one former executive officer with supplemental deferred retirement benefits. The SERP provides an opportunity for the participant to receive retirement benefits that cannot be paid under our tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and length of service and the SERP is unfunded. Benefit payments are expected to total $5,654,000 during the next five fiscal years. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $5,474,000 at December 31, 2015 ($6,882,000 at December 31, 2014).

On April 13, 2014, George L. Chapman, formerly the Chairman, Chief Executive Officer and President of the Company, informed the Board of Directors that he wished to retire from the Company, effective immediately. As a result of Mr. Chapman’s retirement, general and administrative expenses for the year ended December 31, 2014 included charges of $19,688,000 related to: (i) the acceleration of $9,223,000 of deferred compensation for restricted stock; and (ii) consulting, retirement payments and other costs of $10,465,000.

WELLTOWER INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. Quarterly Results of Operations (Unaudited)

The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2015 and 2014 (in thousands, except per share data). The sum of individual quarterly amounts may not agree to the annual amounts included in the consolidated statements of income due to rounding.


		Year Ended December 31, 2015
		1st Quarter		2nd Quarter		3rd Quarter(1)		4th Quarter(2)
Revenues		$	894,177	$	957,169	$	978,997	$	1,029,484
Net income (loss) attributable to common stockholders			190,799		312,573		182,043		132,929
Net income (loss) attributable to common stockholders per share:
	Basic	$	0.57	$	0.89	$	0.52	$	0.38
	Diluted		0.56		0.89		0.52		0.37

		Year Ended December 31, 2014
		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Revenues		$	801,807	$	826,446	$	847,523	$	867,770
Net income attributable to common stockholders			50,022		71,829		136,255		188,639
Net income attributable to common stockholders per share:
	Basic	$	0.17	$	0.24	$	0.44	$	0.58
	Diluted		0.17		0.24		0.44		0.57

(1) The decrease in net income and amounts per share are primarily attributable to gains on sales of real estate of $190,111,000 for the second quarter as compared to gains of $2,046,000 for the third quarter.
(2) The decrease in net income and amounts per share are primarily attributable to the other than temporary impairment charge of $35,648,000 recognized on the available-for-sale investment and increased transaction costs incurred due to fourth quarter acquisitions.

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