Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Welltower Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Welltower Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, 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 10, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Real Property

Description of the Matter At December 31, 2020, the Company’s net real property owned was approximately $27.6 billion. As discussed in Note 2 to the consolidated financial statements, the Company reviews its real property quarterly on a property-by-property basis to determine if facts and circumstances suggest that the real property may be impaired. If the undiscounted cash flows indicate that the real property will not be recoverable, the carrying value of the real property is reduced to its estimated fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.

Auditing the Company’s process to evaluate real property owned for impairment was complex due to the high degree of subjectivity in determining whether indicators of impairment were present for certain properties, and in determining the future undiscounted cash flows and estimated fair values, if necessary, of properties where indicators of impairment were determined to be present. In particular, the undiscounted cash flows and fair value estimates were sensitive to significant assumptions, including future rental revenues and operating expenses, capitalization rates, and anticipated hold period, which are affected by expectations about future market or economic conditions.

How We Addressed the
Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to evaluate real property owned for impairment. This

included testing controls over the Company’s review of impairment indicators by property and management's review and approval of the significant assumptions described above.

To test the Company's evaluation of real property for impairment, we performed audit procedures that included, among others, assessing the methodologies used by management, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its analyses. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business and other relevant factors would affect the significant assumptions. In addition, we assessed the historical accuracy of the Company’s estimates and performed sensitivity analyses of the significant assumptions to evaluate the changes in the undiscounted future cash flows and estimated fair values of the property that would result from changes in the significant assumptions.

Real Estate Acquisitions

Description of the Matter During 2020, the Company completed approximately $904 million of real estate acquisitions. As disclosed in Note 3 of the consolidated financial statements, the total purchase price for all properties acquired has been allocated to the related real estate acquired (tangible assets and identifiable intangible assets and liabilities) based upon their relative fair values.

Auditing the fair values allocated by management to the real estate acquired was complex because the fair value estimates were sensitive to significant assumptions, including comparable land sales, capitalization rates, discount rates, market rental rates and property operating data, which can be impacted by expectations about future market or economic conditions.

How We Addressed the
Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to account for real estate acquisitions, including controls over the Company’s review of the significant assumptions discussed above.

To test the fair values allocated to the real estate acquired, we performed audit procedures that included, among others, assessing the methodologies used by management and evaluating the significant assumptions used by the Company discussed above. We compared certain of management’s assumptions to external market data for similar properties and tested the clerical accuracy of the valuation models. We involved our valuation specialist in our evaluation of the significant assumptions used by the Company and the review of the valuation models.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1970.

Toledo, Ohio

February 10, 2021

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)

						December 31, 2020						December 31, 2019
Assets
Real estate investments:
Real property owned:
Land and land improvements						$	3,440,650					$	3,486,620
Buildings and improvements						28,024,971						29,163,305
Acquired lease intangibles						1,500,030						1,617,051
Real property held for sale, net of accumulated depreciation						216,613						1,253,008
Construction in progress						487,742						507,931
Gross real property owned						33,670,006						36,027,915
Less accumulated depreciation and amortization						(6,104,297)						(5,715,459)
Net real property owned						27,565,709						30,312,456
Right of use assets, net						465,866						536,433
Real estate loans receivable, net of credit allowance						443,372						270,382
Net real estate investments						28,474,947						31,119,271
Other assets:
Investments in unconsolidated entities						946,234						583,423
Goodwill						68,321						68,321
Cash and cash equivalents						1,545,046						284,917
Restricted cash						475,997						100,849
Straight-line rent receivable						344,066						466,222
Receivables and other assets						629,031						757,748
Total other assets						4,008,695						2,261,480
Total assets						$	32,483,642					$	33,380,751
Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper						$	—					$	1,587,597
Senior unsecured notes						11,420,790						10,336,513
Secured debt						2,377,930						2,990,962
Lease liabilities						418,266						473,693
Accrued expenses and other liabilities						1,041,594						1,009,482
Total liabilities						15,258,580						16,398,247
Redeemable noncontrolling interests						343,490						475,877
Equity:
Common stock						418,691						411,005
Capital in excess of par value						20,823,145						20,190,119
Treasury stock						(104,490)						(78,955)
Cumulative net income						8,327,598						7,353,966
Cumulative dividends						(13,343,721)						(12,223,534)
Accumulated other comprehensive income (loss)						(148,504)						(112,157)
Total Welltower Inc. stockholders’ equity						15,972,719						15,540,444
Noncontrolling interests						908,853						966,183
Total equity						16,881,572						16,506,627
Total liabilities and equity						$	32,483,642					$	33,380,751

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)

						Year Ended December 31,
						2020						2019						2018
Revenues:
Resident fees and services						$	3,074,022					$	3,448,175					$	3,234,852
Rental income						1,443,360						1,588,400						1,380,422
Interest income						69,156						63,830						55,814
Other income						19,429						20,901						29,411
Total revenues						4,605,967						5,121,306						4,700,499
Expenses:
Property operating expenses						2,597,823						2,690,042						2,433,017
Depreciation and amortization						1,038,437						1,027,073						950,459
Interest expense						514,388						555,559						526,592
General and administrative expenses						128,394						126,549						126,383
Loss (gain) on derivatives and financial instruments, net						11,049						(4,399)						(4,016)
Loss (gain) on extinguishment of debt, net						47,049						84,155						16,097
Provision for loan losses						94,436						18,690						—
Impairment of assets						135,608						28,133						115,579
Other expenses						70,335						52,612						112,898
Total expenses						4,637,519						4,578,414						4,277,009
Income (loss) from continuing operations before income taxes and other items						(31,552)						542,892						423,490
Income tax (expense) benefit						(9,968)						(2,957)						(8,674)
Income (loss) from unconsolidated entities						(8,083)						42,434						(641)
Gain (loss) on real estate dispositions, net						1,088,455						748,041						415,575
Income (loss) from continuing operations						1,038,852						1,330,410						829,750
Net income						1,038,852						1,330,410						829,750
Less: Preferred stock dividends						—						—						46,704
Less: Net income (loss) attributable to noncontrolling interests(1)						60,008						97,978						24,796
Net income (loss) attributable to common stockholders						$	978,844					$	1,232,432					$	758,250
Average number of common shares outstanding:
Basic						415,451						401,845						373,620
Diluted						417,387						403,808						375,250
Earnings per share:
Basic:
Income (loss) from continuing operations						$	2.50					$	3.31					$	2.22
Net income (loss) attributable to common stockholders						$	2.36					$	3.07					$	2.03
Diluted:
Income (loss) from continuing operations						$	2.49					$	3.29					$	2.21
Net income (loss) attributable to common stockholders(2)						$	2.33					$	3.05					$	2.02

(1) Includes amounts attributable to redeemable noncontrolling interests

(2) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

						Year Ended December 31,
						2020						2019						2018
Net income						$	1,038,852					$	1,330,410					$	829,750
Other comprehensive income (loss):
Unrecognized actuarial gain (loss)						—						540						344
Foreign currency translation gain (loss)						103,612						161,915						(253,022)
Derivative and financial instruments designated as hedges gain (loss)						(134,369)						(131,120)						211,390
Total other comprehensive income (loss)						(30,757)						31,335						(41,288)
Total comprehensive income (loss)						1,008,095						1,361,745						788,462
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)						65,598						111,701						1,812
Total comprehensive income (loss) attributable to common stockholders						$	942,497					$	1,250,044					$	786,650

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes

CONSOLIDATED STATEMENTS OF EQUITY

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)						Preferred Stock						Common Stock						Capital in Excess of Par Value						Treasury Stock						Cumulative Net Income						Cumulative Dividends						Accumulated Other Comprehensive Income (Loss)												Noncontrolling Interests						Total
Balances at December 31, 2017						$	718,503					$	372,449					$	17,663,351					$	(64,559)					$	5,316,580					$	(9,471,712)					$	(111,465)											$	502,305					$	14,925,452
Comprehensive income:
Net income (loss)																														804,954																								25,065						830,019
Other comprehensive income (loss)																																										(18,304)												(22,984)						(41,288)
Total comprehensive income																																																												788,731
Net change in noncontrolling interests																		(43,101)																																				449,879						406,778
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures												188						27,901						(3,940)																																				24,149
Net proceeds from issuance of common stock												11,828						776,506																																										788,334
Conversion of preferred stock						(5)												5																																										—
Dividends paid:
Common stock dividends																																				(1,300,141)																								(1,300,141)
Preferred stock dividends																																				(46,704)																								(46,704)
Balances at December 31, 2018						718,498						384,465						18,424,662						(68,499)						6,121,534						(10,818,557)						(129,769)												954,265						15,586,599
Comprehensive income:
Net income (loss)																														1,232,432																								67,365						1,299,797
Other comprehensive income (loss)																																										17,612												13,440						31,052
Total comprehensive income																																																												1,330,849
Net change in noncontrolling interests																		3,583																																				(68,887)						(65,304)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures												162						25,163						(10,456)																																				14,869
Net proceeds from issuance of common stock												13,666						1,030,925																																										1,044,591
Conversion of preferred stock						(718,498)						12,712						705,786																																										—
Dividends paid:
Common stock dividends																																				(1,404,977)																								(1,404,977)
Balances at December 31, 2019						—						411,005						20,190,119						(78,955)						7,353,966						(12,223,534)						(112,157)												966,183						16,506,627
Cumulative change in accounting principle (Note 2)																														(5,212)																														(5,212)
Balances at January 1, 2020 (as adjusted for change in accounting principle)						—						411,005						20,190,119						(78,955)						7,348,754						(12,223,534)						(112,157)												966,183						16,501,415
Comprehensive income:
Net income (loss)																														978,844																								98,910						1,077,754
Other comprehensive income (loss)																																										(36,347)												5,493						(30,854)
Total comprehensive income																																																												1,046,900
Net change in noncontrolling interests																		18,158																																				(161,733)						(143,575)
Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures												622						27,666						(17,879)																																				10,409
Net proceeds from issuance of common stock												7,064						587,202																																										594,266
Repurchase of common stock																								(7,656)																																				(7,656)
Dividends paid:
Common stock dividends																																				(1,120,187)																								(1,120,187)
Balances at December 31, 2020						$	—					$	418,691					$	20,823,145					$	(104,490)					$	8,327,598					$	(13,343,721)					$	(148,504)											$	908,853					$	16,881,572

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)

						Year Ended December 31,
						2020						2019						2018
Operating activities:
Net income						$	1,038,852					$	1,330,410					$	829,750
Adjustments to reconcile net income to net cash provided from (used in) operating
activities:
Depreciation and amortization						1,038,437						1,027,073						950,459
Other amortization expenses						13,213						16,827						17,000
Provision for loan losses						94,436						18,690						—
Impairment of assets						135,608						28,133						115,579
Stock-based compensation expense						28,318						25,047						27,646
Loss (gain) on derivatives and financial instruments, net						11,049						(4,399)						(4,016)
Loss (gain) on extinguishment of debt, net						47,049						84,155						16,097
Loss (income) from unconsolidated entities						8,083						(42,434)						641
Rental income less than ( in excess of) cash received						60,254						(106,331)						(32,857)
Amortization related to above (below) market leases, net						(1,870)						(676)						2,608
Loss (gain) on real estate dispositions, net						(1,088,455)						(748,041)						(415,575)
Distributions by unconsolidated entities						11,601						—						21
Increase (decrease) in accrued expenses and other liabilities						22,764						(29,068)						70,762
Decrease (increase) in receivables and other assets						(54,583)						(63,418)						5,829
Net cash provided from (used in) operating activities						1,364,756						1,535,968						1,583,944
Investing activities:
Cash disbursed for acquisitions, net of cash acquired						(903,756)						(3,959,683)						(3,560,360)
Cash disbursed for capital improvements to existing properties						(244,989)						(328,824)						(266,183)
Cash disbursed for construction in progress						(201,336)						(323,488)						(160,706)
Capitalized interest						(17,472)						(15,272)						(7,905)
Investment in loans receivable						(247,543)						(119,699)						(112,048)
Principal collected on loans receivable						31,548						127,706						203,935
Other investments, net of payments						7,726						(8,282)						(44,535)
Contributions to unconsolidated entities						(411,154)						(279,631)						(136,854)
Distributions by unconsolidated entities						48,195						216,231						90,916
Proceeds from (payments on) derivatives						(13,319)						(8,499)						65,399
Proceeds from sales of real property						4,300,028						2,650,650						1,541,870
Net cash provided from (used in) investing activities						2,347,928						(2,048,791)						(2,386,471)
Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper						(1,587,597)						440,597						428,000
Proceeds from issuance of senior unsecured notes						1,588,549						3,974,559						2,824,176
Payments to extinguish senior unsecured notes						(566,248)						(3,335,290)						(1,450,000)
Net proceeds from the issuance of secured debt						62,055						343,696						45,447
Payments on secured debt						(694,995)						(284,433)						(362,841)
Net proceeds from the issuance of common stock						595,313						1,056,125						789,575
Repurchase of common stock						(7,656)						—						—
Payments for deferred financing costs and prepayment penalties						(39,087)						(84,142)						(29,691)
Contributions by noncontrolling interests(1)						44,023						55,365						39,207
Distributions to noncontrolling interests(1)						(333,489)						(172,940)						(109,871)
Cash distributions to stockholders						(1,119,232)						(1,400,712)						(1,348,863)
Other financing activities						(22,494)						(15,675)						(6,771)
Net cash provided from (used in) financing activities						(2,080,858)						577,150						818,368
Effect of foreign currency translation on cash and cash equivalents and restricted cash						3,451						5,310						(9,015)
Increase (decrease) in cash, cash equivalents and restricted cash						1,635,277						69,637						6,826
Cash, cash equivalents and restricted cash at beginning of period						385,766						316,129						309,303
Cash, cash equivalents and restricted cash at end of period						$	2,021,043					$	385,766					$	316,129
Supplemental cash flow information:
Interest paid						$	508,454					$	574,536					$	501,404
Income taxes paid						13,671						14,338						2,250

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower 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. Welltower™, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), consisting of seniors housing and post-acute communities and outpatient medical properties.

2. Accounting Policies and Related Matters

Use of Estimates

The preparation of the consolidated 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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

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. 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, U.S. GAAP may preclude consolidation by the sole general partner in certain circumstances based on the type of rights held by the limited partner(s). We assess the limited partners’ rights and their impact on our consolidation conclusions, and we reassess if there is a change to the terms or in the exercisability of the rights of the limited partners, the sole general partner increases or decreases its ownership of limited partnership interests, or 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.

Revenue Recognition

For our Triple-net and Outpatient Medical segments, a significant source of our revenue is generated through leasing arrangements. 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.

For our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and generally is recognized monthly as services are provided. Agreements with residents generally have a term of one year and are cancellable by the resident with 30 days’ notice. Management contracts are present in some of our joint venture agreements to provide asset and property management, leasing, marketing and other services.

Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk.

We recognize gains on the disposition of real estate when the recognition criteria have been met, generally at the time the risks and rewards and title have transferred and we no longer have substantial continuing involvement with the real estate sold. We recognize losses from disposition of real estate when known.

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, amounts held in escrow relating to transactions we are entitled to receive over a period of time as outlined in the escrow agreement and net proceeds from property sales that were executed as tax-deferred dispositions under Internal Revenue Code (“IRC”) Section 1031.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred Loan Expenses

Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments of debt arrangements. Deferred loan expenses related to debt instruments, excluding the primary unsecured credit facility, are recorded as a reduction of the related debt liability. Deferred loan expenses related to the primary unsecured credit facility are included in other assets. 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. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest inclusive of transaction costs. 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. 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.

Equity Securities

Equity securities are measured at fair value with gains and losses recognized in loss (gain) on derivatives and financial instruments, net in the Consolidated Statements of Comprehensive Income.

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 two years. In accordance with ASC 810, the redeemable noncontrolling interests are classified outside of permanent equity, as a mezzanine item, on the balance sheet. At December 31, 2020, the current redemption value of redeemable noncontrolling interests exceeded the carrying value of $343,490,000 by $15,696,000.

We entered into certain 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 estate acquisitions are generally classified as asset acquisitions for which we record tangible assets and identifiable intangible assets and liabilities at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. Tangible assets primarily consist of land, buildings and improvements.

Identifiable intangible assets and liabilities consist primarily of the above or below market component of in-place leases and the value associated with the presence of in-place leases. 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 on the balance sheet and are amortized to rental income over the remaining terms of the respective leases or lease-up period.

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 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 is amortized over the remaining life of the lease or the assumed re-leasing period.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Real property developed by us is recorded at cost, including the capitalization of construction period interest. 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. 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 Consolidated Statement of Cash Flows.

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 assets over the remaining depreciation period indicate that the assets 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. Additionally, properties that meet the held for sale criteria are recorded at the lesser of fair value less costs to sell or the carrying value.

Expenditures for repairs and maintenance are expensed as incurred.

Capitalization of Construction Period Interest

We capitalize interest costs associated with funds used for the construction of properties owned by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our company-wide cost of financing. Our interest expense reflected in the Consolidated Statements of Comprehensive Income has been reduced by the amounts capitalized.

Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of credit allowance, or for non-real estate loans receivable, in receivables and other assets. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks.

In Substance Real Estate Investments

We provide loans to third parties for the acquisition, development and construction of real estate. Under these arrangements, it is possible that we will participate in the expected residual profits of the project through the sale, refinancing or acquisition of the property. We evaluate the characteristics of each arrangement, including its risks and rewards, to determine whether they are more similar to those associated with a loan or an investment in real estate. Arrangements with characteristics implying loan classification are presented as real estate loans receivable and result in the recognition of interest income. Arrangements with characteristics implying real estate joint ventures are treated as in substance real estate investments and presented as investments in unconsolidated entities and are accounted for using the equity method. The classification of each arrangement as either a real estate loan receivable or investment in unconsolidated entity involves judgment and relies on various factors, including market conditions, amount and timing of expected residual profits, credit enhancements in the form of guarantees, estimated fair value of the collateral, and significance of borrower equity in the project, among others. The classification of such arrangements is performed at inception, and periodically reassessed when significant changes occur in the circumstances or conditions described above.

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral. A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual status are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we may return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance. For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill

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 estimates that may change in the future. See Note 12 for additional information.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

						Year Ended December 31,
						2020						2019
Accounts payable						$	101,592					$	58,646
Accrued interest						112,202						104,548
Other accrued expenses						41,471						71,860
Unearned revenues						115,411						183,011
Taxes payable						99,916						97,094
Other liabilities						571,002						494,323
Total						$	1,041,594					$	1,009,482

Federal Income Tax

We have elected to be treated as a REIT under the applicable provisions of the IRC, commencing with our first taxable year, and made no provision for U.S. federal income tax purposes prior to our acquisition of our taxable REIT subsidiaries (“TRSs”). 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 TRSs 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 consolidated 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 19 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.

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. Additionally, net income (loss) allocated to OP units (discussed above) has been included in the numerator and redeemable common stock related to the OP units have been included in the denominator for the purpose of computing diluted earnings per share.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reclassifications

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

Impact of COVID-19 Pandemic

The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future, including but not limited to, the following:

• Our Seniors Housing Operating revenues are dependent on occupancy. Declines in occupancy are expected due to heightened move-in criteria and screening, as well as increased mortality rates among seniors. Occupancy within our total Seniors Housing Operating portfolio has declined as follows (unaudited):

						Feb.						Mar.						Apr.						May						Jun.						Jul.						Aug.						Sep.						Oct.						Nov.						Dec.
Spot occupancy (1)						85.6		%				84.9		%				82.6		%				80.9		%				79.9		%				79.3		%				78.7		%				78.4		%				78.0		%				77.3		%				76.2		%
Sequential occupancy change												(0.7)		%				(2.3)		%				(1.7)		%				(1.0)		%				(0.6)		%				(0.6)		%				(0.3)		%				(0.4)		%				(0.7)		%				(1.1)		%

(1) Spot occupancy represents approximate month end occupancy for properties in operation as of February 29, 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since this date.

• Increased Seniors Housing Operating expenses are expected to continue until the pandemic subsides. We experienced incremental operational costs, net of reimbursements, of $78,792,000 related to consolidated properties for the year ended December 31, 2020, included in property operating expenses. These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure personal protective equipment ("PPE") and supplies, net of reimbursements. Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols.

• In 2020 applications were made for amounts under Phase 2 and Phase 3 of the Provider Relief Fund related to our Seniors Housing Operating portfolio following the announcement from the Department of Health and Human Services that it expanded the eligibility of the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund to include assisted living facilities. During the fourth quarter, we received Provider Relief Funds of approximately $9 million which was recognized as a reduction to property operating expenses. To date in 2021, we have received approximately $34 million of Provider Relief Funds.

• Our Triple-net operators are experiencing similar occupancy declines and expense increases, however, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may impact our Triple-net operators' ability to pay rent and contractual obligations. Many of our Triple-net operators have received funds under the CARES Act Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities are receiving funds from Phase 2 of the Provider Relief Fund. Accordingly, collection of Triple-net rent due during the COVID-19 pandemic to date (from March to December) has generally been consistent with historical collection rates and no significant rent concessions or deferrals have been made.

• Outpatient Medical rent collections through March were generally consistent with pre COVID-19 levels. During the second quarter we executed short term rent deferrals with certain Outpatient Medical tenants which in most cases were required to be repaid by year end. Since then we have collected approximately 99% of Outpatient Medical rent due in the second half of the year, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. Furthermore, collections of deferred rent due under executed deferrals was over 99%. To the extent that deferred rent is not repaid as expected, or the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables.

• Assessing properties for potential impairment involves subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or estimated fair value of the asset. Key assumptions are made in these assessments including the estimation of future rental revenues, occupancy, operating expenses, capitalization rates and the ability and intent to hold the respective asset. All of these assumptions are significantly affected by our expectations of future market or economic conditions and can be highly impacted by the uncertainty of the COVID-19 pandemic. We will continue to evaluate the assumptions used in these analyses, changes to which may result in impairments in future periods.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• The determination of the allowance for credit losses is based on our evaluation of collectability of our loans receivable and includes review of factors such as delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and the value of the underlying collateral. Reduced economic activity severely impacts our borrowers' businesses, financial conditions and liquidity and may hinder their ability to make contractual payments to us, leading to an increase in loans deemed to have deteriorated credit which could result in an increase in the provision for loan losses.

New Accounting Standards

• On January 1, 2020, we adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). This standard requires a new forward-looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the new leases standard from the scope of the new credit losses standard. ASU 2016-13 primarily impacts our measurement for credit losses related to our real estate and non-real estate loans receivable. In conjunction with our adoption of ASU 2016-13, we recorded a $5,212,000 increase to our allowance for credit losses on loans receivable (both real estate and non-real estate) with a corresponding adjustment to cumulative net income related to the change in accounting principle. See Note 7 for further details.

• At the FASB's April 8, 2020 Board meeting, the staff acknowledged that the economics of lease concessions that result from a global pandemic may not be aligned with the underlying premise of the modification framework in ASC 842, under which the concession would be recognized over the remainder of the lease term. In a Q&A document, the FASB provided entities with COVID-19 related lease concessions an option to either (1) apply the modification framework for these concessions in accordance with ASC 842 as applicable or (2) account for concessions as if they were made under the enforceable rights included in the original agreement as long as total cash flows resulting from the modified contract are substantially the same or less than cash flows in the original contract. Due to the continuing adverse economic conditions caused by the COVID-19 pandemic, certain tenants and operators have requested rent relief, most often in the form of a short-term rent deferral. Not all requests result in modification of agreements, nor do we intend to forgo our contractual rights under our lease agreements. We evaluate each rent relief request on an individual basis. To date, the majority of rent deferral agreements resulted in two months of full or partial rent relief to be repaid by the end of the year unless local ordinances mandate otherwise. We have elected to apply the accounting relief provided by the FASB to such short-term rent deferrals, and will account for such deferrals as if no change had been made to the original lease contract.

• In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements. We are currently evaluating the guidance and the impact it may have on our consolidated financial statements.

3. Real Property Acquisitions and Development

The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets and liabilities at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with acquisitions, including due diligence costs, fees for legal and valuation services, termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Transaction costs related to asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in other expenses on our Consolidated Statements of Comprehensive Income.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

						Year Ended December 31, 2020
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	55,000					$	16,876					$	45,590					$	117,466
Buildings and improvements						527,189						73,855						179,004						780,048
Acquired lease intangibles						28,668						—						24,718						53,386
Total net real estate assets						610,857						90,731						249,312						950,900
Receivables and other assets						746						—						268						1,014
Total assets acquired(1)						611,603						90,731						249,580						951,914
Accrued expenses and other liabilities						(1,650)						—						(962)						(2,612)
Total liabilities assumed						(1,650)						—						(962)						(2,612)
Noncontrolling interests(2)						(45,546)						—						—						(45,546)
Cash disbursed for acquisitions						564,407						90,731						248,618						903,756
Construction in progress additions						134,945						45,256						39,833						220,034
Less: Capitalized interest						(10,389)						(3,209)						(3,874)						(17,472)
Accruals(3)						(1,226)						—						—						(1,226)
Cash disbursed for construction in progress						123,330						42,047						35,959						201,336
Capital improvements to existing properties						107,379						76,625						60,985						244,989
Total cash invested in real property, net of cash acquired						$	795,116					$	209,403					$	345,562					$	1,350,081

(1) Excludes $580,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

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

						Year Ended December 31, 2019
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	154,470					$	24,097					$	293,933					$	472,500
Buildings and improvements						1,518,748						203,282						1,954,928						3,676,958
Acquired lease intangibles						76,009						—						183,921						259,930
Real property held for sale						17,435						—						—						17,435
Construction in progress						36,174						—						—						36,174
Right of use assets, net						—						—						58,377						58,377
Total net real estate assets						1,802,836						227,379						2,491,159						4,521,374
Receivables and other assets						15,634						—						1,586						17,220
Total assets acquired(1)						1,818,470						227,379						2,492,745						4,538,594
Secured debt						(194,408)						—						(206,754)						(401,162)
Lease liabilities						—						—						(47,740)						(47,740)
Accrued expenses and other liabilities						(12,024)						—						(32,893)						(44,917)
Total liabilities assumed						(206,432)						—						(287,387)						(493,819)
Noncontrolling interests(2)						(67,987)						(4,015)						(1,201)						(73,203)
Non-cash acquisition related activity(3)						(11,889)						—						—						(11,889)
Cash disbursed for acquisitions						1,532,162						223,364						2,204,157						3,959,683
Construction in progress additions						227,018						61,414						60,884						349,316
Less: Capitalized interest						(8,889)						(2,385)						(3,998)						(15,272)
Accruals(4)						—						—						(1,035)						(1,035)
Cash disbursed for construction in progress						218,129						59,029						55,851						333,009
Capital improvements to existing properties						260,413						17,426						50,985						328,824
Total cash invested in real property, net of cash acquired						$	2,010,704					$	299,819					$	2,310,993					$	4,621,516

(1) Excludes $2,090,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

(3) Relates to the acquisition of assets previously recognized as investments in unconsolidated entities.

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

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31, 2018
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	51,440					$	413,588					$	77,239					$	542,267
Buildings and improvements						621,731						2,242,884						478,740						3,343,355
Acquired lease intangibles						69,504						9,690						50,813						130,007
Real property held for sale						—						396,265						22,032						418,297
Total net real estate assets						742,675						3,062,427						628,824						4,433,926
Receivables and other assets						1,492						1,354						1,185						4,031
Total assets acquired(1)						744,167						3,063,781						630,009						4,437,957
Secured debt						(134,752)						—						(169,156)						(303,908)
Accrued expenses and other liabilities						(18,463)						(13,199)						(14,896)						(46,558)
Total liabilities assumed						(153,215)						(13,199)						(184,052)						(350,466)
Noncontrolling interests(2)						(14,390)						(512,741)						—						(527,131)
Cash disbursed for acquisitions						576,562						2,537,841						445,957						3,560,360
Construction in progress additions						82,621						55,558						26,565						164,744
Less: Capitalized interest						(3,190)						(2,238)						(2,477)						(7,905)
Accruals(3)						—						—						(339)						(339)
Cash disbursed for construction in progress						79,431						53,320						23,749						156,500
Capital improvements to existing properties						201,001						10,046						55,136						266,183
Total cash invested in real property, net of cash acquired						$	856,994					$	2,601,207					$	524,842					$	3,983,043

(1) Excludes $395,397,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

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

Acquisition of Quality Care Properties

On July 26, 2018, we completed the acquisition of Quality Care Properties Inc. ("QCP"), with QCP shareholders receiving $20.75 of cash for each share of QCP common stock and all existing QCP debt was repaid upon closing. Prior to the acquisition, ProMedica Health System ("ProMedica") completed the acquisition of HCR ManorCare. Immediately following the acquisition of QCP, we formed an 80/20 joint venture with ProMedica to own the real estate associated with the 218 seniors housing properties leased to ProMedica under a lease agreement with the following key terms: (i) 15-year absolute triple-net master lease with three 5-year renewal options; (ii) initial annual cash rent of $179 million with a year one escalator of 1.375% and 2.75% annual escalators thereafter; and (iii) full corporate guarantee of ProMedica. Additionally, we acquired 59 seniors housing properties classified as held for sale and leased to ProMedica under a non-yielding lease, 12 seniors housing properties and one surgery center classified as held for sale and leased to operators under existing triple-net leases, 14 seniors housing properties leased to operators under existing triple-net leases and one multi-tenant medical office building leased to various tenants. The aggregate consideration to acquire the QCP shares and repay outstanding QCP debt was approximately $3.5 billion.

We concluded that the QCP acquisition met the definition of an asset acquisition under ASU 2017-01, "Clarifying the Definition of a Business". The following table presents the purchase price calculation and the allocation to assets acquired and liabilities assumed based upon their relative fair value:

(In thousands)
Land and land improvements						$	417,983
Buildings and improvements						2,253,451
Acquired lease intangibles						12,820
Real property held for sale						418,297
Cash and cash equivalents						381,913
Restricted cash						4,981
Receivables and other assets						1,354
Total assets acquired						3,490,799
Accrued expenses and other liabilities						(13,199)
Total liabilities assumed						(13,199)
Noncontrolling interests						(512,741)
Net assets acquired						$	2,964,859

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Construction Activity

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

						Year Ended
						December 31, 2020						December 31, 2019						December 31, 2018
Development projects:
Seniors Housing Operating						$	93,188					$	28,117					$	86,931
Triple-net						75,149						—						90,055
Outpatient Medical						43,493						21,006						11,358
Total development projects						211,830						49,123						188,344
Expansion projects						48,600						—						20,029
Total construction in progress conversions						$	260,430					$	49,123					$	208,373

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, 2020						December 31, 2019
Assets:
In place lease intangibles						$	1,406,705					$	1,513,836
Above market tenant leases						52,621						59,540
Lease commissions						40,704						43,675
Gross historical cost						1,500,030						1,617,051
Accumulated amortization						(1,177,513)						(1,181,158)
Net book value						$	322,517					$	435,893
Weighted-average amortization period in years						10.5						10.3
Liabilities:
Below market tenant leases						$	77,851					$	99,035
Accumulated amortization						(40,871)						(49,390)
Net book value						$	36,980					$	49,645
Weighted-average amortization period in years						8.3						8.6

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

						Year Ended December 31,
						2020						2019						2018
Rental income related to (above)/below market tenant leases, net						$	1,710					$	508					$	(1,269)
Amortization related to in place lease intangibles and lease commissions						(121,004)						(135,047)						(122,515)

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

						Assets						Liabilities
2021						$	78,160					$	7,993
2022						43,726						7,320
2023						34,071						5,158
2024						26,524						3,049
2025						21,324						2,482
Thereafter						118,712						10,978
Totals						$	322,517					$	36,980

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Dispositions, Real Property Held for Sale and Impairment

We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (e.g. property type, relationship or geography). At December 31, 2020, four Seniors Housing Operating, one Triple-net and ten Outpatient Medical properties with an aggregate net real estate balance of $216,613,000 were classified as held for sale for which we expect gross sales proceeds of approximately $276,363,000. In addition to the real property balances held for sale, net other assets and (liabilities) of $35,811,000 are included in the Consolidated Balance Sheets related to held for sale properties.

During the year ended December 31, 2020, we recorded impairment charges of $87,873,000 related to 15 Seniors Housing Operating and one Triple-net properties which were disposed of or classified as held for sale for which the carrying value exceeded the fair values, less estimated costs to sell. Additionally, during the year ended December 31, 2020, we recorded $47,735,000 of impairment charges related to six Seniors Housing Operating and four Triple-net properties that were held for use in which the carrying value exceed the fair value. The following is a summary of our real property disposition activity for the periods presented (in thousands):

						Year Ended
						December 31, 2020						December 31, 2019						December 31, 2018
Real estate dispositions:
Seniors Housing Operating						$	1,289,769					$	1,232,816					$	36,627
Triple-net						51,666						667,632						835,093
Outpatient Medical						1,755,864						482						253,397
Total dispositions						3,097,299						1,900,930						1,125,117
Gain (loss) on real estate dispositions, net						1,088,455						748,041						415,575
Net other assets (liabilities) disposed						114,274						1,679						1,178
Proceeds from real estate dispositions						$	4,300,028					$	2,650,650					$	1,541,870

Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations, are not reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands):

						Year Ended December 31,
						2020						2019						2018
Revenues:
Total revenues						$	257,089					$	712,529					$	916,896
Expenses:
Interest expense						6,665						18,506						18,801
Property operating expenses						134,119						375,327						495,770
Provision for depreciation						55,114						138,041						189,909
Total expenses						195,898						531,874						704,480
Income (loss) from real estate dispositions, net						$	61,191					$	180,655					$	212,416

6. Leases

We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide a rate implicit in the lease agreement, we use our incremental borrowing rate available at lease commencement to determine the present value of lease payments. The incremental borrowing rates were determined using our longer term borrowing rates (actual pricing through 30 years, as well as other longer-term market rates).

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease for seven buildings which are subleased to Genesis Healthcare.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

												Year Ended
						Classification						December 31, 2020						December 31, 2019
Operating lease cost: (1)
Real estate lease expense						Property operating expenses						$	23,472					$	25,166
Non-real estate investment lease expense						General and administrative expenses						4,745						1,654
Finance lease cost:
Amortization of leased assets						Property operating expenses						8,203						7,795
Interest on lease liabilities						Interest expense						6,411						4,748
Sublease income						Rental income						(4,173)						(4,173)
Total												$	38,658					$	35,190

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

Maturities of lease liabilities as of December 31, 2020 are as follows (in thousands):

						Operating Leases						Finance Leases
2021						$	20,316					$	8,777
2022						19,051						8,587
2023						19,082						69,439
2024						18,380						1,491
2025						15,575						1,459
Thereafter						910,134						107,674
Total lease payments						1,002,538						197,427
Less: Imputed interest						(691,374)						(90,325)
Total present value of lease liabilities						$	311,164					$	107,102

Supplemental balance sheet information related to leases was as follows for the periods presented (in thousands, except lease terms and discount rate):

			Classification						December 31, 2020						December 31, 2019
Right of use assets:
Operating leases - real estate			Right of use assets, net						$	310,017					$	374,217
Finance leases - real estate			Right of use assets, net						155,849						162,216
Real estate right of use assets, net									465,866						536,433
Operating leases - non-real estate investments			Receivables and other assets						9,624						12,474
Total right of use assets, net									$	475,490					$	548,907
Lease liabilities:
Operating leases									$	311,164					$	364,803
Financing leases									107,102						108,890
Total lease liabilities									$	418,266					$	473,693
Weighted average remaining lease term (years):
Operating leases									46.9						46.0
Finance leases									17.7						15.9
Weighted average discount rate:
Operating leases									5.02		%				5.00		%
Finance leases									5.16		%				5.18		%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):

									Year Ended
Cash Paid for Amounts Included in the Measurement of Lease Liabilities			Classification						December 31, 2020						December 31, 2019
Operating cash flows from operating leases			Decrease (increase) in receivables and other assets						$	9,323					$	6,397
Operating cash flows from operating leases			Increase (decrease) in accrued expenses and other liabilities						(3,918)						(5,489)
Operating cash flows from finance leases			Decrease (increase) in receivables and other assets						8,263						10,732
Financing cash flows from finance leases			Other financing activities						(3,568)						(3,401)

Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. During the year ended December 31, 2020, we wrote off straight-line recent receivable balances of $146,508,000 relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable. Included in such amounts was $91,025,000 relating to Genesis Healthcare whom noted substantial doubt as to their ability to continue as a going concern in August.

Leases in our Triple-net and Outpatient Medical portfolios typically include some form of operating expense reimbursement by the tenant. For the year ended December 31, 2020, we recognized $1,443,360,000 of rental income related to operating leases, of which $203,348,000 was for variable lease payments, which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the year ended December 31, 2019, we recognized $1,588,400,000 of rental income related to operating leases, of which $200,564,000 was for variable lease payments.

The following table sets forth the future minimum lease payments receivable for leases in effect at December 31, 2020 (excluding properties in our Seniors Housing Operating portfolio and excluding any operating expense reimbursements) (in thousands):

2021						$	1,405,428
2022						1,390,915
2023						1,332,520
2024						1,306,595
2025						1,236,338
Thereafter						7,957,714
Totals						$	14,629,510

7. Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets, net of allowance for credit losses. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $15,615,000 and $6,897,000 as of December 31, 2020 and December 31, 2019, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2020						2019
Mortgage loans						$	299,430					$	188,062
Other real estate loans						152,739						124,696
Allowance for credit losses on real estate loans receivable						(8,797)						(42,376)
Real estate loans receivable, net of credit allowance						443,372						270,382
Non-real estate loans						455,508						362,850
Allowance for credit losses on non-real estate loans receivable						(215,239)						(25,996)
Non-real estate loans receivable, net of credit allowance(1)						240,269						336,854
Total loans receivable, net of credit allowance						$	683,641					$	607,236

(1) Included in receivables and other assets on the Consolidated Balance Sheets.

During the year ended December 31, 2020, the real estate collateral associated with one loan was released, therefore, the principal balance of $86,411,000 and related allowance for credit losses of $42,376,000 was reclassified to non-real estate loans.

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

						Year Ended
						December 31, 2020						December 31, 2019						December 31, 2018
Advances on loans receivable:
Investments in new loans						$	224,078					$	46,824					$	77,289
Draws on existing loans						23,465						72,875						34,759
Net cash advances on loans receivable						247,543						119,699						112,048
Receipts on loans receivable:
Loan payoffs						15,677						118,703						144,700
Principal payments on loans						15,871						9,003						59,235
Net cash receipts on loans receivable						31,548						127,706						203,935
Net cash advances (receipts) on loans receivable						$	215,995					$	(8,007)					$	(91,887)

The following is a summary of our loans by credit loss category (in thousands):

			December 31, 2020
Loan category			Years of Origination			Loan Carrying Value			Allowance for Credit Loss			Net Loan Balance			No. of Loans
Deteriorated loans (1)			2007 - 2018			$	242,319		$	(212,514)		$	29,805		6
Collective loan pool			2007 - 2015			130,436			(2,452)			127,984			14
Collective loan pool			2016			126,465			(2,381)			124,084			4
Collective loan pool			2017			126,792			(1,429)			125,363			7
Collective loan pool			2018			19,923			(374)			19,549			1
Collective loan pool			2019			48,819			(886)			47,933			7
Collective loan pool			2020			212,923			(4,000)			208,923			9
Total loans						$	907,677		$	(224,036)		$	683,641		48

In 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for and eventually wrote off certain Triple-net real estate loans receivable that were no longer deemed collectible. During the year ended December 31, 2020, we recognized additional provision for loan losses of $88,201,000 as a result of the current collateral estimates for loans with deteriorated credit, primarily relating to our outstanding Genesis Healthcare loans. As of December 31, 2020, the total allowance for credit losses balance of $224,036,000 is deemed to be sufficient to absorb expected losses relating to our loan portfolio. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2020						2019						2018
Balance at beginning of year						$	68,372					$	68,372					$	68,372
Adoption of ASU 2016-13						5,212						—						—
Provision for loan losses						94,436						18,690						—
Loan write-offs						(7,000)						(18,690)						—
Foreign currency translation						197						—						—
Reclassification of deferred gain as credit loss(1)						62,819						—						—
Balance at end of year						$	224,036					$	68,372					$	68,372
(1) During the year ended December 31, 2020, two loans receivable originated in 2016 to Genesis Healthcare with an aggregate carrying value of $62,753,000 were transferred to the deteriorated loan pool. In addition, deferred gains of $62,819,000 previously recorded in accrued expenses and other liabilities were reclassified to the allowance for credit losses.

The following is a summary of our deteriorated loans (in thousands):

						Year Ended December 31,
						2020						2019						2018
Balance of deteriorated loans at end of year(1)						$	242,319					$	188,018					$	189,272
Allowance for credit losses						(212,514)						(68,372)						(68,372)
Balance of deteriorated loans not reserved						$	29,805					$	119,646					$	120,900
Interest recognized on deteriorated loans(2)						18,937						16,235						17,241

(1) Balances include $3,623,000, $2,534,000 and 2567000 of loans on non-accrual as of December 31, 2020, 2019 and 2018, respectively.

(2) Represents cash interest recognized in the period.

8. Investments in Unconsolidated Entities

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

						Percentage Ownership(1)						December 31, 2020						December 31, 2019
Seniors Housing Operating						10% to 65%						$	653,057					$	463,741
Triple-net						10% to 25%						5,629						7,740
Outpatient Medical						15% to 50%						287,548						111,942
Total												$	946,234					$	583,423

(1) Includes ownership of investments classified as liabilities and excludes ownership of in-substance real estate.

We own 34% of Sunrise Senior Living Management, Inc. ("Sunrise"), who provides comprehensive property management and accounting services with respect to certain of our Seniors Housing Operating properties that Sunrise operates. We pay Sunrise annual management fees pursuant to long-term management agreements. Our management agreements have initial terms expiring through December 2035 plus, if applicable, optional renewal periods ranging from an additional 5 to 15 years depending on the property. The management fees payable to Sunrise under the management agreements include a fee based on a percentage of revenues generated by the applicable properties plus, if applicable, positive or negative adjustments based on specified performance targets. For the years ended December 31, 2020, 2019 and 2018, we recognized fees to Sunrise of $40,088,000, $41,200,000 and $36,378,000, respectively, which are reflected within property operating expenses in our Consolidated Statements of Comprehensive Income.

During the year ended December 31, 2019, we sold our interest in a Seniors Housing Operating joint venture and recognized a gain of $38,681,000 in income (loss) from unconsolidated entities in our Consolidated Statements of Comprehensive Income.

At December 31, 2020, the aggregate unamortized basis difference of our joint venture investments of $116,504,000 is primarily attributable to the difference between the amount for which we purchased our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture. This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.

We have made loans totaling $333,934,000 related to eight properties as of December 31, 2020 for the development and construction of certain properties which are classified as in substance real estate investments. We believe that such borrowers typically represent variable interest entities (“VIE” or VIE’s”) in accordance with ASC 810 Consolidation. VIE’s are required to be consolidated by their Primary Beneficiary (“PB”) which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the PB of such

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower’s equity in the project. Based on these assessments the arrangements have been classified as in substance real estate investments. We expect to fund an additional $120,004,000 related to these investments.

9. Credit Concentration

We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the year ended December 31, 2020, excluding our share of NOI in unconsolidated entities (dollars in thousands):

						Number of						Total						Percent of
Concentration by relationship:(1)						Properties						NOI						NOI(2)
Sunrise Senior Living(3)						165						$	257,558					13%
ProMedica						215						212,593						11%
Revera(3)						94						100,344						5%
Avery Healthcare						60						75,863						4%
Sagora Senior Living						31						67,399						3%
Remaining portfolio						928						1,294,387						64%
Totals						1,493						$	2,008,144					100%

(1) Sunrise Senior Living and Revera are in our Seniors Housing Operating segment. ProMedica is in our Triple-net segment. Avery Healthcare and Sagora Senior Living are in both the Triple-net and Seniors Housing Operating segments.

(2) NOI with our top five relationships comprised 37% of total NOI for the year ending December 31, 2019.

(3) Revera owns a controlling interest in Sunrise. For the year ended December 31, 2020, we recognized $1,147,146,000 of revenue from properties managed by Sunrise Senior Living.

10. Borrowings Under Credit Facilities and Commercial Paper Program

At December 31, 2020, we had a primary unsecured credit facility with a consortium of 31 banks that includes a $3,000,000,000 unsecured revolving credit facility ($0 outstanding at December 31, 2020), a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (none outstanding at December 31, 2020). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate. The applicable margin is based on our debt ratings and was 0.825% at December 31, 2020. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on our debt ratings and was 0.15% at December 31, 2020. The term credit facilities mature on July 19, 2023. The revolving credit facility is scheduled to mature on July 19, 2022 and can be extended for two successive terms of six months each at our option.

In January 2019, we established an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper notes with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate face or principal amount outstanding at any time of $1,000,000,000 (none outstanding at December 31, 2020.

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

						Year Ended December 31,
						2020						2019						2018
Balance outstanding at year end						$	—					$	1,588,600					$	1,147,000
Maximum amount outstanding at any month end						$	2,100,000					$	2,880,000					$	2,148,000
Average amount outstanding (total of daily principal balances
divided by days in period)						$	497,014					$	1,376,813					$	950,581
Weighted-average interest rate (actual interest expense divided
by average borrowings outstanding)						2.09		%				2.84		%				3.07		%

11. Senior Unsecured Notes and Secured Debt

We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (i) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (ii) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. At December 31, 2020, the annual principal payments due on these debt obligations were as follows (in thousands):

						Senior Unsecured Notes(1,2)						Secured Debt (1,3)						Totals
2021						$	—					$	451,038					$	451,038
2022(4)						870,000						460,892						1,330,892
2023(5,6)						1,369,784						372,541						1,742,325
2024						1,350,000						183,345						1,533,345
2025						1,250,000						214,440						1,464,440
Thereafter(7,8,9)						6,669,749						695,817						7,365,566
Totals						$	11,509,533					$	2,378,073					$	13,887,606

(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 Sheets.

(2) Annual interest rates range from 0.85% to 6.50%.

(3) Annual interest rates range from 0.09% to 12.00%. Carrying value of the properties securing the debt totaled $5,388,000,000 at December 31, 2020.

(4) Includes a $860,000,000 unsecured term credit facility. The loan matures on April 1, 2022 and bears interest at LIBOR plus 1.20% (1.35% at December 31, 2020).

(5) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $196,032,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2020). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9% (1.37% at December 31, 2020).

(6) Includes a $500,000,000 unsecured term credit facility. The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9% (1.05% at December 31, 2020).

(7) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $235,239,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2020).

(8) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $751,410,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on December 31, 2020).

(9) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $683,100,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on December 31, 2020).

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

						Year Ended
						December 31, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	10,427,562					4.03%						$	9,699,984					4.48%						$	8,417,447					4.31%
Debt issued						1,600,000						1.89%						3,987,790						3.34%						2,850,000						4.57%
Debt extinguished						(566,248)						3.26%						(3,335,290)						4.39%						(1,450,000)						3.46%
Foreign currency						48,219						4.35%						75,078						4.22%						(117,463)						4.16%
Ending balance						$	11,509,533					3.67%						$	10,427,562					4.03%						$	9,699,984					4.48%

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

						Year Ended
						December 31, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	2,993,342					3.63%						$	2,485,711					3.90%						$	2,618,408					3.76%
Debt issued						62,055						2.55%						343,696						3.11%						45,447						3.40%
Debt assumed						—						—%						385,145						4.34%						292,887						4.64%
Debt extinguished						(632,288)						2.21%						(230,108)						4.35%						(306,553)						5.36%
Principal payments						(62,707)						3.63%						(54,325)						3.75%						(56,288)						3.91%
Foreign currency						17,671						2.93%						63,223						3.28%						(108,190)						3.33%
Ending balance						$	2,378,073					3.27%						$	2,993,342					3.63%						$	2,485,711					3.90%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2020, we were in compliance with all of the covenants under our debt agreements.

12. Derivative Instruments

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments and interest rate risk related to our capital structure. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, cross currency swap contracts, interest rate swaps, interest rate locks and debt issued in foreign currencies to offset a portion of these risks.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings.

Cash Flow Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to the Consolidated Statements of Comprehensive Income. Approximately $2,686,000 of losses, which are included in OCI, are expected to be reclassified into earnings in the next 12 months.

Foreign Currency Forward Contracts and Cross Currency Swap Contracts Designated as Net Investment Hedges

We use foreign currency forward and cross currency forward swap contracts to hedge a portion of the net investment in foreign subsidiaries against fluctuations in foreign exchange rates. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI.

During the years ended December 31, 2020, 2019, and 2018 we settled certain net investment hedges necessitating cash payments of $1,988,000 and generating cash proceeds of $6,716,000, and $70,897,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

Derivative Contracts Undesignated

We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the Consolidated Statements of Comprehensive Income, and are substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures. In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense.

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

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						December 31, 2020						December 31, 2019
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars						$	625,000					$	725,000
Denominated in Pound Sterling						£	1,340,708					£	1,340,708
Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars						$	250,000					$	250,000
Denominated in Pound Sterling						£	1,050,000					£	1,050,000
Interest rate swaps designated as cash flow hedges:
Denominated in U.S. Dollars(1)						$	450,000					$	1,188,250
Derivative instruments not designated:
Interest rate caps denominated in U.S. Dollars						$	26,137					$	405,819
Forward sales contracts denominated in Canadian Dollars						$	80,000					$	—
Forward purchase contracts denominated in Pound Sterling						£	—					£	(125,000)
Forward sales contracts denominated in Pound Sterling						£	—					£	125,000

(1) At December 31, 2020 the maximum maturity date was January 15, 2021.

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

												Year Ended
Description						Location						December 31, 2020						December 31, 2019						December 31, 2018
Gain (loss) on derivative instruments designated as hedges recognized in income						Interest expense						$	22,698					$	26,419					$	12,271
Gain (loss) on derivative instruments not designated as hedges recognized in income						Interest expense						$	(5,982)					$	(2,310)					$	5,233
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI						OCI						$	(134,369)					$	(131,120)					$	211,390

13. Commitments and Contingencies

At December 31, 2020, we had 9 outstanding letter of credit obligations totaling $19,476,000 and expiring between 2021 and 2024. At December 31, 2020, we had outstanding construction in progress of $487,742,000 and were committed to providing additional funds of approximately $622,108,000 to complete construction. Additionally, at December 31, 2020, we had outstanding investments classified as in substance real estate of $333,934,000 and were committed to provide additional funds of $120,004,000 (see Note 8 for additional information). Purchase obligations include $42,685,000 of contingent obligations to fund capital improvements. Rents due from the operator are increased to reflect the additional investment in the property.

14. Stockholders’ Equity

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

						December 31, 2020						December 31, 2019
Preferred Stock, $1.00 par value:
Authorized shares						50,000,000						50,000,000
Issued shares						—						—
Outstanding shares						—						—
Common Stock, $1.00 par value:
Authorized shares						700,000,000						700,000,000
Issued shares						419,124,469						411,550,857
Outstanding shares						417,400,602						410,256,615

Preferred Stock

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended
						December 31, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Shares						Dividend Rate						Shares						Dividend Rate						Shares						Dividend Rate
Beginning balance						—						—%						14,369,965						6.50%						14,370,060						6.50%
Shares converted						—						—%						(14,369,965)						6.50%						(95)						6.50%
Ending balance						—						—%						—						—%						14,369,965						6.50%

During the year ended December 31, 2019, we converted all of the outstanding Series I Preferred Stock. Each share was converted into 0.8857 shares of common stock.

Common Stock

In February 2019, we entered into an amended and restated equity distribution agreement whereby we can offer and sell up to $1,500,000,000 aggregate amount of our common stock ("Equity Shelf Program"). The Equity Shelf Program also allows us to enter into forward sale agreements. During the year ended December 31, 2020, we physically settled all of our outstanding forward sale agreements for cash proceeds of $576,196,000. As of December 31, 2020, we had $499,341,000 of remaining capacity under the Equity Shelf Program.

On May 1, 2020, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $1 billion of common stock through December 31, 2021 (the "Repurchase Program"). Under this authorization, we are not required to purchase shares but may choose to do so in the open market or through private transactions at times and amounts based on our evaluation of market conditions and other factors. We expect to finance any share repurchases under the Repurchase Program using available cash and may use proceeds from borrowings or debt offerings. During the year ended December 31, 2020, we repurchased 201,947 shares at an average price of $37.89 per share.

The following is a summary of our common stock activity during the periods indicated (dollars in thousands, except average price amounts):

						Shares Issued						Average Price						Gross Proceeds						Net Proceeds
2018 Dividend reinvestment plan issuances						6,529,417						$	65.55					$	428,009					$	423,075
2018 Option exercises						56,960						42.66						2,430						2,430
2018 Equity Shelf Program issuances						5,241,349						69.95						366,640						364,070
2018 Preferred stock conversions						83												—						—
2018 Stock incentive plans, net of forfeitures						115,243												—						—
2018 Totals						11,943,052												$	797,079					$	789,575
2019 Dividend reinvestment plan issuances						5,798,979						$	77.18					$	447,559					$	443,929
2019 Option exercises						10,736						51.32						551						551
2019 Equity Shelf Program issuances						7,855,956						78.15						613,948						611,645
2019 Preferred stock conversions						12,712,452												—						—
2019 Stock incentive plans, net of forfeitures						203,889												—						—
2019 Totals						26,582,012												$	1,062,058					$	1,056,125
2020 Dividend reinvestment plan issuances						264,153						$	72.33					$	19,105					$	19,105
2020 Option exercises						251						47.81						12						12
2020 Equity Shelf Program issuances						6,799,978						86.48						588,072						576,196
2020 Stock incentive plans, net of forfeitures						281,552												—						—
2020 Totals						7,345,934												$	607,189					$	595,313

Dividends

During the year ended December 31, 2020, we declared a reduced cash dividend beginning with the quarter ended March 31, 2020. Please refer to Note 19 for information related to federal income tax of dividends. The following is a summary of our dividend payments (in thousands, except per share amounts):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended
						December 31, 2020												December 31, 2019												December 31, 2018
						Per Share						Amount						Per Share						Amount						Per Share						Amount
Common Stock						$	2.7000					$	1,120,187					$	3.4800					$	1,404,977					$	3.4800					$	1,300,141
Series I Preferred Stock						—						—						—						—						3.2500						46,704
Totals												$	1,120,187											$	1,404,977											$	1,346,845

Accumulated Other Comprehensive Income

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

						December 31, 2020						December 31, 2019
Foreign currency translation						$	(621,792)					$	(719,814)
Derivative and financial instruments designated as hedges						473,288						607,657
Total accumulated other comprehensive loss						$	(148,504)					$	(112,157)

15. Stock Incentive Plans

Our 2016 Long-Term Incentive Plan (“2016 Plan”) authorizes up to 10,000,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Our non-employee directors, officers and key employees are eligible to participate in the 2016 Plan. The 2016 Plan allows for the issuance of, among other things, stock options, stock appreciation rights, restricted stock, deferred stock units, performance units, and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to four years. Options expire ten years from the date of grant.

Under our long-term incentive plan, certain restricted stock awards are market, performance and time-based. For market and performance based awards, 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. These awards vest after the end of the performance periods. The expected term represents the period from the grant date to the end of 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 the performance period. For the portion of the grant for which the award is determined by the operating performance metrics, the compensation cost is based on the grant date closing price and management’s estimate of corporate achievement of 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 fair value and compensation cost. Forfeitures are accounted for as they occur.

For the years ended December 31, 2020, 2019 and 2018, we recognized stock compensation expense (a component of general and administrative expenses, property operating expenses, and other expenses) of $28,318,000, $25,047,000, and $27,646,000, respectively.

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, 2020, there was $20,900,000 of total unrecognized compensation expense related to unvested restricted stock that is expected to be recognized over a weighted-average period of two years. The following table summarizes information about non-vested restricted stock incentive awards as of and for the year ended December 31, 2020:

						Restricted Stock
						Number of Shares (000's)						Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2019						1,106						$	70.26
Vested						(580)						71.36
Granted						274						88.24
Forfeited or Expired						(395)						83.01
Non-vested at December 31, 2020						405						$	69.35

16. Earnings Per Share

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

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2020						2019						2018
Numerator for basic earnings per share - net income attributable
to common stockholders						$	978,844					$	1,232,432					$	758,250
Adjustment for net income (loss) attributable to OP units						(6,146)						806						173
Numerator for diluted earnings per share						$	972,698					$	1,233,238					$	758,423
Denominator for basic earnings per share - weighted average shares						415,451						401,845						373,620
Effect of dilutive securities:
Employee stock options						—						—						9
Non-vested restricted shares						519						835						512
Redeemable OP units						1,396						1,112						1,096
Employee stock purchase program						21						16						13
Dilutive potential common shares						1,936						1,963						1,630
Denominator for diluted earnings per share - adjusted weighted average shares						417,387						403,808						375,250
Basic earnings per share						$	2.36					$	3.07					$	2.03
Diluted earnings per share						$	2.33					$	3.05					$	2.02

As of December 31, 2018, the Series I Cumulative Convertible Perpetual Preferred Stock were excluded from the calculations as the effect of the conversions were anti-dilutive. As of December 31, 2019, forward sales agreements outstanding for the sale of 4,935,804 shares of common stock were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the period.

17. Disclosure about Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined below:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Mortgage Loans, Other Real Estate Loans and Non-real Estate Loans Receivable — The fair value of mortgage loans, other real estate loans and non-real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

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

Equity Securities — Equity securities are recorded at their fair value based on Level 1 publicly available trading prices.

Borrowings Under Primary Unsecured Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured credit facility and commercial paper program approximates fair value because the borrowings are interest rate adjustable.

Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable.

Foreign Currency Forward Contracts, Interest Rate Swaps and Cross Currency Swaps — Foreign currency forward contracts, interest rate swaps and cross currency swaps are recorded in other assets or other liabilities on the balance sheet at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2).

Redeemable OP Unitholder Interests — Our redeemable OP unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs unless the fair value is below the initial amount in which case the redeemable OP unitholder interests are recorded at the initial amount adjusted for distributions to the unitholders and income or loss attributable to the unitholders. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances.

The carrying amounts and estimated fair values of our financial instruments are as follows as of the dates presented (in thousands):

						December 31, 2020												December 31, 2019
						Carrying						Fair						Carrying						Fair
						Amount						Value						Amount						Value
Financial assets:
Mortgage loans receivable						$	293,752					$	297,207					$	145,686					$	150,217
Other real estate loans receivable						149,620						152,211						124,696						128,512
Equity securities						4,636						4,636						15,685						15,685
Cash and cash equivalents						1,545,046						1,545,046						284,917						284,917
Restricted cash						475,997						475,997						100,849						100,849
Non-real estate loans receivable						240,269						255,724						336,854						379,239
Foreign currency forward contracts, interest rate swaps and cross currency swaps						4,668						4,668						18,554						18,554
Financial liabilities:
Borrowings under unsecured credit facility and commercial paper program						$	—					$	—					$	1,587,597					$	1,587,597
Senior unsecured notes						11,420,790						13,093,926						10,336,513						11,400,571
Secured debt						2,377,930						2,451,782						2,990,962						3,041,893
Foreign currency forward contracts, interest rate swaps and cross currency swaps						118,054						118,054						53,601						53,601
Redeemable OP unitholder interests						$	116,240					$	115,346					$	121,440					$	121,440

Items Measured at Fair Value on a Recurring Basis

The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):

						Fair Value Measurements as of December 31, 2020
						Total						Level 1						Level 2						Level 3
Equity securities						$	4,636					$	4,636					$	—					$	—
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability)(1)						(113,386)						—						(113,386)						—
Totals						$	(108,750)					$	4,636					$	(113,386)					$	—

(1) Please see Note 12 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 on our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income, and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.

18. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our Seniors Housing Operating properties include seniors apartments, assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are generally owned and/or operated through RIDEA structures (see Note 19). Our Triple-net properties include the property types described above as well as long-term/post-acute care facilities. Under the Triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our Outpatient Medical properties are typically leased to multiple tenants and generally require a certain level of property management by us.

We evaluate performance based upon consolidated NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

Non-segment revenue consists mainly of 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, 2020, 2019 and 2018 is as follows (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2020:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,074,022					$	—					$	—					$	—					$	3,074,022
Rental income						—						733,776						709,584						—						1,443,360
Interest income						618						62,625						5,913						—						69,156
Other income						7,223						4,903						4,522						2,781						19,429
Total revenues						3,081,863						801,304						720,019						2,781						4,605,967
Property operating expenses						2,326,311						53,183						214,948						3,381						2,597,823
Consolidated net operating income						755,552						748,121						505,071						(600)						2,008,144
Depreciation and amortization						544,462						232,604						261,371						—						1,038,437
Interest expense						54,901						9,477						17,579						432,431						514,388
General and administrative expenses						—						—						—						128,394						128,394
Loss (gain) on derivatives and financial instruments, net						—						11,049						—						—						11,049
Loss (gain) on extinguishment of debt, net						12,659						—						1,046						33,344						47,049
Provision for loan losses						671						90,563						3,202						—						94,436
Impairment of assets						100,741						34,867						—						—						135,608
Other expenses						14,265						22,923						8,218						24,929						70,335
Income (loss) from continuing operations before income taxes and other items						27,853						346,638						213,655						(619,698)						(31,552)
Income tax (expense) benefit						—						—						—						(9,968)						(9,968)
Income (loss) from unconsolidated entities						(33,857)						18,462						7,312						—						(8,083)
Gain (loss) on real estate dispositions, net						328,249						64,288						695,918						—						1,088,455
Income (loss) from continuing operations						322,245						429,388						916,885						(629,666)						1,038,852
Net income (loss)						$	322,245					$	429,388					$	916,885					$	(629,666)					$	1,038,852
Total assets						$	16,044,153					$	8,547,482					$	6,522,880					$	1,369,127					$	32,483,642

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2019:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,448,175					$	—					$	—					$	—					$	3,448,175
Rental income						—						903,798						684,602						—						1,588,400
Interest income						36						62,599						1,195						—						63,830
Other income						8,658						6,246						2,031						3,966						20,901
Total revenues						3,456,869						972,643						687,828						3,966						5,121,306
Property operating expenses						2,417,349						53,900						218,793						—						2,690,042
Consolidated net operating income						1,039,520						918,743						469,035						3,966						2,431,264
Depreciation and amortization						553,189						232,626						241,258						—						1,027,073
Interest expense						67,983						12,892						13,411						461,273						555,559
General and administrative expenses						—						—						—						126,549						126,549
Loss (gain) on derivatives and financial instruments, net						—						(4,399)						—						—						(4,399)
Loss (gain) on extinguishment of debt, net						1,614						—						—						82,541						84,155
Provision for loan losses						—						18,690						—						—						18,690
Impairment of assets						2,145						11,926						14,062						—						28,133
Other expenses						26,348						13,771						1,788						10,705						52,612
Income (loss) from continuing operations before income taxes and other items						388,241						633,237						198,516						(677,102)						542,892
Income tax (expense) benefit						—						—						—						(2,957)						(2,957)
Income (loss) from unconsolidated entities						12,388						22,985						7,061						—						42,434
Gain (loss) on real estate dispositions, net						528,747						218,322						972						—						748,041
Income (loss) from continuing operations						929,376						874,544						206,549						(680,059)						1,330,410
Net income (loss)						$	929,376					$	874,544					$	206,549					$	(680,059)					$	1,330,410
Total assets						$	15,784,898					$	9,434,817					$	7,991,521					$	169,515					$	33,380,751

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2018:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,234,852					$	—					$	—					$	—					$	3,234,852
Rental income						—						828,865						551,557						—						1,380,422
Interest income						578						54,926						310						—						55,814
Other income						5,024						17,173						4,939						2,275						29,411
Total revenues						3,240,454						900,964						556,806						2,275						4,700,499
Property operating expenses						2,255,432						915						176,670						—						2,433,017
Consolidated net operating income						985,022						900,049						380,136						2,275						2,267,482
Depreciation and amortization						529,449						235,480						185,530						—						950,459
Interest expense						69,060						14,225						7,051						436,256						526,592
General and administrative expenses						—						—						—						126,383						126,383
Loss (gain) on derivatives and financial instruments, net						—						(4,016)						—						—						(4,016)
Loss (gain) on extinguishment of debt, net						110						(32)						11,928						4,091						16,097
Impairment of assets						7,599						107,980						—						—						115,579
Other expenses(1)						6,624						90,975			(1)			7,570						7,729						112,898
Income (loss) from continuing operations before income taxes and other items						372,180						455,437						168,057						(572,184)						423,490
Income tax (expense) benefit						—						—						—						(8,674)						(8,674)
Income (loss) from unconsolidated entities						(28,142)						21,938						5,563						—						(641)
Gain (loss) on real estate dispositions, net						(2,245)						196,589						221,231						—						415,575
Income (loss) from continuing operations						341,793						673,964						394,851						(580,858)						829,750
Net income (loss)						$	341,793					$	673,964					$	394,851					$	(580,858)					$	829,750

(1) Represents non-capitalizable transaction costs of $81,116,000 primarily related to a joint venture transaction with an existing seniors housing operator including the conversion of properties from Triple-net to Seniors Housing Operating and termination/restructuring of preexisting relationships.

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, 2020												December 31, 2019												December 31, 2018
Revenues:						Amount(1)						%						Amount						%						Amount						%
United States						$	3,720,155					80.8		%				$	4,205,492					82.1		%				$	3,777,960					80.4		%
United Kingdom						451,399						9.8		%				452,698						8.8		%				452,956						9.6		%
Canada						434,413						9.4		%				463,116						9.1		%				469,583						10.0		%
Total						$	4,605,967					100.0		%				$	5,121,306					100.0		%				$	4,700,499					100.0		%
						As of
						December 31, 2020												December 31, 2019
Assets:						Amount						%						Amount						%
United States						$	26,658,659					82.1		%				$	27,513,911					82.4		%
United Kingdom						3,352,549						10.3		%				3,405,388						10.2		%
Canada						2,472,434						7.6		%				2,461,452						7.4		%
Total						$	32,483,642					100.0		%				$	33,380,751					100.0		%

(1) The United States, United Kingdom and Canada represent 76%, 10% and 14%, respectively, of our resident fees and services revenue for the year ended December 31, 2020.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. Income Taxes and Distributions

We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

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

						Year Ended December 31,
						2020						2019						2018
Per share:
Ordinary dividend(1)						$	1.6389					$	2.6937					$	2.1988
Long-term capital gain/(loss)(2)						1.0611						0.7863						1.1153
Return of capital						—						—						0.1659
Totals						$	2.7000					$	3.4800					$	3.4800

(1) For the years ended December 31, 2020, 2019 and 2018, includes Section 199A dividends of $1.6389, $2.6937 and $2.1988 respectively.

(2) For the years ended December 31, 2020, 2019 and 2018, includes Unrecaptured SEC. 1250 Gains of $0.3458, $0.2835 and $0.3822, respectively.

Our consolidated provision for income tax expense (benefit) is as follows for the periods presented (in thousands):

						Year Ended December 31,
						2020						2019						2018
Current tax expense						$	11,358					$	12,594					$	15,850
Deferred tax benefit						(1,390)						(9,637)						(7,176)
Income tax expense (benefit)						$	9,968					$	2,957					$	8,674

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, 2020, as a result of ownership of investments in Canada and the U.K., 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, 2020 primarily relates to state taxes, foreign taxes, and taxes based on income generated by entities that are structured as TRSs. For the tax years ended December 31, 2020, 2019 and 2018, the foreign tax provision/(benefit) amount included in the consolidated provision for income taxes was $5,777,000, ($3,892,000) and $9,804,000, respectively.

A reconciliation of income taxes, which is computed by applying the federal corporate tax rate for the years ended December 31, 2020, 2019 and 2018, to the income tax expense/(benefit) is as follows for the periods presented (in thousands):

						Year Ended December 31,
						2020						2019						2018
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes						$	220,252					$	280,005					$	176,069
Increase (decrease) in valuation allowance(1)						85,881						3,465						28,309
Tax at statutory rate on earnings not subject to federal income taxes						(300,196)						(311,224)						(206,937)
Foreign permanent depreciation						1,504						9,260						8,110
Other differences						2,527						21,451						3,123
Totals						$	9,968					$	2,957					$	8,674

(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 asset/(liability) attributes, are summarized as follows for the periods presented (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2020						2019						2018
Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets and the treatment of interests and certain costs						$	(24,085)					$	(13,064)					$	(2,533)
Operating loss and interest deduction carryforwards						196,634						127,525						98,713
Expense accruals and other						72,459						43,056						48,804
Valuation allowances						(244,938)						(159,057)						(155,592)
Net deferred tax assets (liabilities)						$	70					$	(1,540)					$	(10,608)

On the basis of the evaluations performed as required by the codification, valuation allowances totaling $244,938,000 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 than 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 (in thousands):

						Year Ended December 31,
						2020						2019						2018
Beginning balance						$	159,057					$	155,592					$	127,283
Expense (benefit)						85,881						3,465						28,309
Ending balance						$	244,938					$	159,057					$	155,592

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 (i) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (ii) 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, 2017, we acquired certain additional assets with built-in gains as of the date of acquisition that could be subject to the built-in 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.

Given the applicable statute of limitations, we generally are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2017 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, 2016. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to May 2016 related to entities acquired or formed in connection with acquisitions, and by the U.K.’s HM Revenue & Customs for periods subsequent to August 2014 related to entities acquired or formed in connection with acquisitions.

At December 31, 2020, we had a net operating loss (“NOL”) carryforward related to the REIT of $351,254,000. 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 generated through December 31, 2018 will expire through 2038. Beginning with the tax years after December 31, 2017, the law eliminates the NOL carryback period for REITs, replaces the 20-year NOL carryforward period with an indefinite carryforward period and, with respect to tax years beginning after 2020, limits the use of NOLs to 80% of taxable income.

At December 31, 2020 and 2019, we had an NOL carryforward related to Canadian entities of $262,345,000 and $195,791,000 respectively. These Canadian losses have a 20-year carryforward period. At December 31, 2020 and 2019, we had an NOL carryforward related to U.K. entities of $207,085,000 and $209,776,000 respectively. These U.K. losses do not have a finite carryforward period.

The CARES Act, among its economic stimulus provisions, includes a number of tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Certain of these provisions may impact the provision for taxes in our consolidated financial statements, including in particular the provision allowing for the carryback of net operating losses which would be applicable to our TRSs. We have made a reasonable estimate of the tax impact to us of the CARES Act in our consolidated financial

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

statements, and while we do not believe that there will be further material impacts to the consolidated financial statements related to the CARES Act tax provisions, we will continue to evaluate the impact of the CARES Act and any guidance provided by the U.S. Treasury and the IRS on our consolidated financial statements. It is possible our estimates could differ materially from the actual tax impact to us of the CARES Act.

20. Quarterly Results of Operations (Unaudited)

The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2020 and 2019 (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 Comprehensive Income due to rounding.

						Year Ended December 31, 2020
						1st Quarter						2nd Quarter						3rd Quarter						4th Quarter
Revenues						$	1,258,602					$	1,188,475					$	1,036,874					$	1,122,016
Net income (loss) attributable to common stockholders						$	310,284					$	179,246					$	325,585					$	163,729
Net income (loss) attributable to common stockholders per share:
Basic						$	0.76					$	0.43					$	0.78					$	0.39
Diluted (1)						$	0.75					$	0.42					$	0.77					$	0.39
						Year Ended December 31, 2019
						1st Quarter						2nd Quarter						3rd Quarter						4th Quarter
Revenues						$	1,272,245					$	1,320,106					$	1,266,133					$	1,262,822
Net income (loss) attributable to common stockholders						$	280,470					$	137,762					$	589,876					$	224,324
Net income (loss) attributable to common stockholders per share:
Basic						$	0.72					$	0.34					$	1.46					$	0.55
Diluted (1)						$	0.71					$	0.34					$	1.45					$	0.55
(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

21. Variable Interest Entities

We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be VIEs. We have concluded that we are the primary beneficiary of these VIEs based on a combination of operational control of the joint venture and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Except for capital contributions associated with the initial joint venture formations, the joint ventures have been and are expected to be funded from the ongoing operations of the underlying properties. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands):

						December 31, 2020						December 31, 2019
Assets:
Net real estate investments						$	454,333					$	960,093
Cash and cash equivalents						15,547						27,522
Receivables and other assets						11,171						14,586
Total assets(1)						$	481,051					$	1,002,201
Liabilities and equity:
Secured debt						$	165,671					$	460,117
Lease liabilities						1,325						1,326
Accrued expenses and other liabilities						14,997						22,215
Total equity						299,058						518,543
Total liabilities and equity						$	481,051					$	1,002,201

(1) Note that assets of the consolidated VIEs can only be used to settle obligations relating to such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs.