Welltower(WELL) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This part covers the company's unaudited consolidated financial statements and management's financial analysis Item 1. Financial Statements (Unaudited) The company presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements, with detailed notes on business, accounting, real property, debt, derivatives, and segment reporting Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :---------------------------------- | :------------- | :---------------- | | Total Assets | $30,637,336 | $30,342,072 | | Total Liabilities | $14,138,960 | $14,331,427 | | Total Equity | $16,047,831 | $15,586,599 | | Unsecured credit facility and commercial paper | $419,293 | $1,147,000 | Consolidated Statements of Comprehensive Income This section outlines the company's financial performance over specific periods, including revenues, expenses, and net income Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Total Revenues | $1,272,245 | $1,096,965 | | Total Expenses | $1,135,931 | $977,577 | | Net Income | $292,302 | $453,555 | | Net income attributable to common stockholders | $280,470 | $437,671 | | Diluted Earnings per share | $0.71 | $1.17 | Consolidated Statements of Equity This section details changes in the company's equity over time, reflecting net income, stock transactions, and dividends Consolidated Statements of Equity Highlights (in thousands) | Metric | March 31, 2019 | March 31, 2018 | | :--------------------------------------- | :------------- | :------------- | | Balances at end of period (Total Equity) | $16,047,831 | $15,059,326 | | Net income (loss) attributable to common stockholders | $280,470 | $449,347 | | Proceeds from issuance of common stock | $532,620 | $7,190 | | Common stock dividends paid | $(344,760) | $(323,726) | | Conversion of preferred stock | $718,498 | — | Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided from operating activities | $343,895 | $368,644 | | Net cash provided from investing activities | $197,268 | $421,077 | | Net cash provided from financing activities | $(452,205) | $(835,349) | | Cash, cash equivalents and restricted cash at end of period | $407,439 | $264,119 | Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements 1. Business This section describes the company's core operations, strategic focus, and geographic presence as a healthcare REIT - Welltower Inc. is an S&P 500 company, a real estate investment trust (REIT) headquartered in Toledo, Ohio, focused on transforming healthcare infrastructure[20] - The company invests with leading seniors housing operators, post-acute providers, and health systems, owning interests in properties concentrated in major, high-growth markets in the U.S., Canada, and U.K[20] 2. Accounting Policies and Related Matters This section outlines the significant accounting principles and methods used in preparing the financial statements, including recent standard adoptions - The company adopted Accounting Standards Update 2016-02, Leases (Topic 842) ("ASC 842") on January 1, 2019, using the modified retrospective approach[22] - Upon adoption, a right-of-use asset of $509,386,000 and operating lease liabilities of $357,070,000 were recognized, with no material impact on the Consolidated Statements of Comprehensive Income or Cash Flows[24][25] 3. Real Property Acquisitions and Development This section details the company's investment activities in acquiring and developing real estate properties, including cash disbursements and construction progress Real Property Investment Activity (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total assets acquired | $293,531 | $514,646 | | Cash disbursed for acquisitions | $237,610 | $405,609 | | Construction in progress additions | $59,106 | $29,215 | | Total construction in progress conversions | $0 | $85,977 | 4. Real Estate Intangibles This section provides information on the company's intangible assets related to real estate, including their net book value and amortization periods Real Estate Intangibles (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :--------------------------------------- | :------------- | :---------------- | | Net book value (Assets) | $324,628 | $383,823 | | Weighted-average amortization period (years) | 10.1 | 16.0 | | Amortization related to in place lease intangibles and lease commissions (3 months ended March 31) | $(24,905) | $(32,261) | - Effective January 1, 2019, above and below market ground lease intangibles are reported within right-of-use assets, net, on the Consolidated Balance Sheet due to ASC 842 adoption[32] 5. Dispositions and Assets Held for Sale This section reports on the company's activities in selling real estate properties and assets classified as held for sale Real Property Disposition Activity (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total dispositions | $436,071 | $548,936 | | Gain (loss) on real estate dispositions, net | $167,409 | $338,184 | | Proceeds from real estate dispositions | $602,732 | $892,209 | - As of March 31, 2019, 13 Seniors Housing Operating, 16 Triple-net, and 2 Outpatient Medical properties, with an aggregate real estate balance of $330,327,000, were classified as held for sale[36] 6. Leases This section details the company's lease-related financial information, including right-of-use assets, lease liabilities, and future minimum lease payments Lease-Related Balance Sheet Information (in thousands) | Metric | March 31, 2019 | | :-------------------------- | :------------- | | Total right of use assets, net | $506,071 | | Total lease liabilities | $426,639 | | Weighted average remaining lease term (Operating leases) | 52.5 years | | Total undiscounted cash flows for future minimum lease payments receivable | $14,922,046 | 7. Real Estate Loans Receivable This section provides information on the company's real estate loans receivable, including total balances, allowances for losses, and impaired loans Net Real Estate Loans Receivable (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------------- | :------------- | :---------------- | | Totals | $351,085 | $330,339 | | Allowance for losses on loans receivable | $(87,062) | $(68,372) | - In March 2019, a provision for loan losses of $18,690,000 was recognized to fully reserve for certain Triple-net real estate loans receivable deemed uncollectible[46] Impaired Loans (in thousands) | Metric | March 31, 2019 | March 31, 2018 | | :-------------------------- | :------------- | :------------- | | Balance of impaired loans at end of period | $206,783 | $214,896 | | Allowance for loan losses | $87,062 | $68,372 | 8. Investments in Unconsolidated Entities This section details the company's equity investments in joint ventures and other unconsolidated entities across various segments Investments in Unconsolidated Entities (in thousands) | Segment | March 31, 2019 | December 31, 2018 | | :-------------------- | :------------- | :---------------- | | Seniors Housing Operating | $360,896 | $344,982 | | Triple-net | $9,772 | $34,284 | | Outpatient Medical | $113,597 | $103,648 | | Total | $484,265 | $482,914 | - The company participates in joint ventures with ownership interests ranging from 10% to 50%, primarily in seniors housing and health care real estate[50] 9. Credit Concentration This section highlights the company's exposure to credit risk by detailing the concentration of net operating income from its key relationships Credit Concentration by Relationship (Three Months Ended March 31, 2019, in thousands) | Relationship | NOI | Percent of NOI | | :-------------------- | :-------- | :------------- | | Sunrise Senior Living | $90,592 | 15% | | ProMedica | $53,771 | 9% | | Revera | $36,682 | 6% | | Genesis HealthCare | $32,298 | 5% | | Benchmark Senior Living | $25,027 | 4% | | Remaining portfolio | $363,068 | 61% | | Totals | $601,438 | 100% | - NOI with the top five relationships comprised 38% of total NOI for the year ended December 31, 2018[53] 10. Borrowings Under Credit Facilities and Commercial Paper Program This section provides details on the company's short-term borrowing arrangements, including credit facilities and commercial paper outstanding - The company has a $3,000,000,000 unsecured revolving credit facility (none outstanding at March 31, 2019) and a $1,000,000,000 unsecured commercial paper program established in January 2019[54][55] Borrowings Under Credit Facilities and Commercial Paper Program (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Balance outstanding at quarter end | $419,293 | $865,000 | | Maximum amount outstanding at any month end | $1,150,000 | $865,000 | | Average amount outstanding | $790,516 | $364,111 | | Weighted average interest rate | 3.22% | 2.72% | 11. Senior Unsecured Notes and Secured Debt This section outlines the company's long-term debt obligations, including senior unsecured notes and secured debt, with their respective principal payment schedules Annual Principal Payments Due (in thousands) | Year | Senior Unsecured Notes | Secured Debt | | :----- | :--------------------- | :----------- | | 2019 | $0 | $384,466 | | 2020 | $232,051 | $140,969 | | 2021 | $450,000 | $376,808 | | 2022 | $600,000 | $283,452 | | 2023 | $1,787,126 | $328,511 | | Thereafter | $6,668,360 | $1,158,752 | | Totals | $9,737,537 | $2,672,958 | - The company was in compliance with all covenants under its debt agreements as of March 31, 2019[67] 12. Derivative Instruments This section describes the company's use of financial derivatives to manage exposure to interest rate and foreign currency exchange rate fluctuations - The company uses foreign currency forward contracts and cross-currency swap contracts to hedge a portion of its net investment in foreign subsidiaries against foreign exchange rate fluctuations[70] Notional Amount of Derivatives (in thousands) | Instrument | March 31, 2019 | December 31, 2018 | | :--------------------------------------- | :------------- | :---------------- | | Derivatives designated as net investment hedges (Canadian Dollars) | $575,000 | $575,000 | | Derivatives designated as net investment hedges (Pounds Sterling) | £1,340,708 | £890,708 | | Interest rate caps denominated in U.S. Dollars | $405,819 | $405,819 | 13. Commitments and Contingencies This section details the company's outstanding obligations, including letters of credit, construction commitments, and purchase obligations - As of March 31, 2019, the company had 14 outstanding letter of credit obligations totaling $49,439,000[76] - The company was committed to providing additional funds of approximately $526,306,000 to complete construction projects[76] - Purchase obligations included $1,250,000,000 representing a definitive agreement to acquire outpatient medical facilities in 2019[76] 14. Stockholders' Equity This section provides information on changes in the company's equity, including common stock issuances, preferred stock conversions, and dividends - During the three months ended March 31, 2019, all outstanding Series I Preferred Stock was converted into common stock[81] Common Stock Issuances (in thousands, except average price) | Metric | 2019 Totals | 2018 Totals | | :--------------------------------------- | :---------- | :---------- | | Shares Issued | 20,065,429 | 239,104 | | Gross Proceeds | $538,616 | $7,214 | | Net Proceeds | $533,543 | $7,214 | - Common stock dividends declared and paid per common share remained consistent at $0.87 for both Q1 2019 and Q1 2018[12][81] 15. Stock Incentive Plans This section describes the company's equity compensation programs for employees and directors, including authorized shares and stock-based compensation expense - The 2016 Long-Term Incentive Plan authorizes up to 10,000,000 shares of common stock for issuance to non-employee directors, officers, and key employees[84] Stock-Based Compensation Expense (in thousands) | Period | Amount | | :--------------------------------------- | :------- | | Three months ended March 31, 2019 | $7,529 | | Three months ended March 31, 2018 | $11,557 | 16. Earnings Per Share This section presents the company's basic and diluted earnings per share, reflecting net income attributable to common stockholders Earnings Per Share (EPS) (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to common stockholders | $280,470 | $437,671 | | Basic EPS | $0.72 | $1.18 | | Diluted EPS | $0.71 | $1.17 | 17. Disclosure about Fair Value of Financial Instruments This section explains how the company determines the fair value of its financial instruments using various input levels - The company estimates fair value using Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs) inputs[86][87] Fair Value of Financial Instruments (March 31, 2019, in thousands) | Instrument | Carrying Amount | Fair Value | | :--------------------------------------- | :-------------- | :--------- | | Senior unsecured notes | $9,632,013 | $10,409,527 | | Secured debt | $2,660,190 | $2,709,741 | | Foreign currency forward contracts and cross currency swaps (net asset/liability) | $(32,609) | $(32,609) | 18. Segment Reporting This section provides financial information broken down by the company's operating segments and geographic areas, aiding in performance evaluation - The company evaluates its business and allocates resources based on three operating segments: Seniors Housing Operating, Triple-net, and Outpatient Medical[101] Consolidated Net Operating Income (NOI) by Segment (Three Months Ended March 31, 2019, in thousands) | Segment | NOI | | :-------------------- | :-------- | | Seniors Housing Operating | $264,700 | | Triple-net | $233,286 | | Outpatient Medical | $101,295 | | Non-segment / Corporate | $2,157 | | Total | $601,438 | Revenues and Assets by Geographic Location (March 31, 2019, in thousands) | Geographic Area | Revenues (%) | Assets (%) | | :---------------- | :----------- | :--------- | | United States | 82.1% | 81.6% | | United Kingdom | 8.8% | 10.5% | | Canada | 9.1% | 7.9% | 19. Income Taxes and Distributions This section outlines the company's tax obligations and distribution requirements as a REIT, including structures for certain joint ventures - As a REIT, the company must distribute at least 90% of its taxable income to stockholders[108] - The company utilizes REIT Investment Diversification and Empowerment Act of 2007 (RIDEA) structures for certain joint ventures, where resident level rents and operating expenses are subject to federal and state income taxes[109] 20. Variable Interest Entities This section details the company's consolidation of joint ventures classified as VIEs, where it holds primary beneficiary status - The company consolidates joint ventures classified as Variable Interest Entities (VIEs) where it is deemed the primary beneficiary due to operational control and the rights/obligations related to residual returns or losses[111] Consolidated VIEs Balance Sheet Highlights (in thousands) | Metric | March 31, 2019 | December 31, 2018 | | :-------------------- | :------------- | :---------------- | | Total assets | $1,006,548 | $1,007,091 | | Secured debt | $464,186 | $465,433 | | Total equity | $518,934 | $523,429 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, covering an executive summary, liquidity and capital resources, detailed results by operating segment, and other financial disclosures including non-GAAP measures and critical accounting policies Executive Summary This section offers a high-level overview of the company's business, strategy, key transactions, and performance indicators Company Overview This section introduces Welltower Inc. as an S&P 500 REIT focused on healthcare infrastructure, detailing its investment focus and property types - Welltower Inc. (NYSE:WELL) is an S&P 500 REIT focused on healthcare infrastructure, investing in seniors housing, post-acute, and outpatient medical properties across the U.S., Canada, and U.K[123] Consolidated Portfolio by Property Type (Three Months Ended March 31, 2019) | Type of Property | Percentage of NOI | | :-------------------- | :---------------- | | Seniors Housing Operating | 44.2% | | Triple-net | 38.9% | | Outpatient Medical | 16.9% | Business Strategy This section outlines the company's core objectives, including capital protection, stockholder value enhancement, consistent dividends, and risk mitigation strategies - Primary objectives are to protect stockholder capital, enhance stockholder value, and pay consistent cash dividends, achieved through diversified investments and active asset management[125] - The company mitigates payment risk by monitoring investments, reviewing obligor/partner creditworthiness, conducting property inspections, and structuring investments with credit enhancements like guaranties and letters of credit[126][127] - Resident fees and services (68%) and rental income (30%) were the primary sources of total revenues for the three months ended March 31, 2019[128] Key Transactions This section highlights significant financial and property-related activities undertaken by the company during the reporting period - Established a $1,000,000,000 unsecured Commercial Paper Program in January 2019[132] - Issued $1,050,000,000 in senior unsecured notes for net proceeds of approximately $1,036,964,000 in February 2019[132] - Converted all outstanding 6.50% Series I Cumulative Convertible Perpetual Preferred Stock into common stock in February 2019[132] Property Acquisitions and Dispositions (Three Months Ended March 31, 2019, in thousands) | Activity | Properties | Investment Amount / Proceeds | | :-------------------- | :--------- | :--------------------------- | | Acquisitions | 17 | $258,771 | | Dispositions | 34 | $612,205 | Key Performance Indicators, Trends and Uncertainties This section analyzes the company's operational and credit performance metrics, identifying key trends and potential future challenges Operating Performance (Three Months Ended March 31, in thousands, except per share data) | Indicator | 2019 | 2018 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Net income (loss) | $292,302 | $453,555 | -36% | | NICS | $280,470 | $437,671 | -36% | | FFO | $358,383 | $353,220 | +1% | | NOI | $601,438 | $540,500 | +11% | | SSNOI | $446,984 | $436,609 | +2% | | Diluted NICS per share | $0.71 | $1.17 | -39% | | Diluted FFO per share | $0.91 | $0.95 | -4% | Credit Strength (Three Months Ended March 31) | Ratio | 2019 | 2018 | Change | | :------------------------------------ | :----- | :----- | :------- | | Net debt to book capitalization ratio | 43% | 42% | +1% | | Net debt to undepreciated book capitalization ratio | 36% | 35% | +1% | | Net debt to market capitalization ratio | 28% | 34% | -6% | | Interest coverage ratio | 4.80x | 6.67x | -28% | | Fixed charge coverage ratio | 4.38x | 5.49x | -20% | Concentration Risk by NOI (Three Months Ended March 31, 2019) | Category | % of NOI | | :-------------------- | :------- | | Seniors Housing Operating | 44% | | Triple-net | 39% | | Outpatient Medical | 17% | | Sunrise Senior Living | 15% | | ProMedica | 9% | | California | 13% | | United Kingdom | 9% | | Canada | 7% | Corporate Governance This section affirms the company's commitment to ethical business practices and increasing stockholder value through its Board and management policies - The Board of Directors and management are committed to policies and procedures reflecting the highest level of ethical business practices and increasing stockholder value[146] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, detailing sources and uses of funds, off-balance sheet arrangements, and capital structure Sources and Uses of Cash This section analyzes the company's cash flow activities from operations, investing, and financing, along with capital improvement expenditures Sources and Uses of Cash Flows (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Cash provided from (used in) operating activities | $343,895 | $368,644 | $(24,749) | -7% | | Cash provided from (used in) investing activities | $197,268 | $421,077 | $(223,809) | -53% | | Cash provided from (used in) financing activities | $(452,205) | $(835,349) | $383,144 | -46% | | Cash, cash equivalents and restricted cash at end of period | $407,439 | $264,119 | $143,320 | 54% | Non-Acquisition Capital Improvement Activities (Three Months Ended March 31, in thousands) | Activity | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | New development | $55,391 | $22,735 | $32,656 | 144% | | Total | $112,326 | $69,282 | $43,044 | 62% | Off-Balance Sheet Arrangements This section describes the company's financial commitments and exposures not fully reflected on the balance sheet, such as unconsolidated investments and derivatives - The company has investments in unconsolidated entities with ownership interests ranging from 10% to 50%[150] - Financial derivative instruments are used to hedge interest rate and foreign currency exchange rate exposure[150] - As of March 31, 2019, there were 14 outstanding letter of credit obligations totaling $49,439,000[150] Contractual Obligations This section provides a summary of the company's future payment commitments under various contractual agreements, including debt and purchase obligations Summary of Contractual Obligations (as of March 31, 2019, in thousands) | Contractual Obligations | Total | 2019 | 2020-2021 | 2022-2023 | Thereafter | | :--------------------------------------- | :---------- | :------- | :---------- | :---------- | :--------- | | Unsecured credit facility and commercial paper | $419,700 | $419,700 | $0 | $0 | $0 | | Senior unsecured notes and term credit facilities | $9,737,937 | $0 | $682,051 | $2,387,126 | $6,668,760 | | Secured debt (Consolidated) | $2,672,958 | $384,466 | $517,777 | $611,963 | $1,158,752 | | Purchase obligations | $1,797,219 | $1,614,840 | $179,466 | $0 | $2,913 | | Total contractual obligations | $21,885,189 | $2,898,796 | $2,558,585 | $4,033,480 | $12,394,328 | Capital Structure This section details the company's financing mix, compliance with debt covenants, and available capacity for future debt and equity offerings - The company was in compliance with all debt covenants as of March 31, 2019[154] - An open-ended automatic shelf registration statement was filed for future offerings of debt and equity securities[155] - The Equity Shelf Program allows for the offer and sale of up to $1,500,000,000 of common stock, with $1,370,738,000 remaining capacity as of April 19, 2019[155] Results of Operations This section provides a detailed analysis of the company's financial performance, breaking down revenues, expenses, and profitability by operating segment Summary This section offers a concise overview of the company's key financial results, including net income, FFO, NOI, and coverage ratios Summary of Results of Operations (Three Months Ended March 31, in thousands, except per share amounts) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Net income | $292,302 | $453,555 | $(161,253) | -36% | | NICS | $280,470 | $437,671 | $(157,201) | -36% | | FFO | $358,383 | $353,220 | $5,163 | 1% | | EBITDA | $683,688 | $806,119 | $(122,431) | -15% | | NOI | $601,438 | $540,500 | $60,938 | 11% | | SSNOI | $446,984 | $436,609 | $10,375 | 2% | | Diluted NICS per share | $0.71 | $1.17 | $(0.46) | -39% | | Diluted FFO per share | $0.91 | $0.95 | $(0.04) | -4% | | Interest coverage ratio | 4.80x | 6.67x | (1.87)x | -28% | | Fixed charge coverage ratio | 4.38x | 5.49x | (1.11)x | -20% | Seniors Housing Operating This section analyzes the financial performance of the company's Seniors Housing Operating segment, including revenues, expenses, and development projects Seniors Housing Operating NOI and SSNOI (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | NOI | $264,700 | $225,226 | $39,474 | 18% | | SSNOI | $219,892 | $212,582 | $7,310 | 3% | Seniors Housing Operating Revenues (Three Months Ended March 31, in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Resident fees and services | $868,285 | $735,934 | $132,351 | 18% | | Total revenues | $872,386 | $737,167 | $135,219 | 18% | - The increase in revenues and property operating expenses is primarily due to acquisitions and segment transitions, as well as fluctuations in U.S. and foreign currency exchange rates[160] - Pending construction projects as of March 31, 2019, include 218 units with a commitment of $133,544,000, and two projects in the planning stage[162] Triple-net This section examines the financial performance of the company's Triple-net segment, focusing on rental income, loan losses, and construction projects Triple-net NOI and SSNOI (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | NOI | $233,286 | $222,738 | $10,548 | 5% | | SSNOI | $139,395 | $137,230 | $2,165 | 2% | Triple-net Revenues (Three Months Ended March 31, in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Rental income | $232,032 | $206,831 | $25,201 | 12% | | Total revenues | $248,241 | $222,759 | $25,482 | 11% | - A provision for loan losses of $18,690,000 was recognized in March 2019 to fully reserve for certain uncollectible real estate loans receivable[170] - Pending Triple-net construction projects as of March 31, 2019, include 322 units/beds with a total commitment of $73,905,000[171][172] Outpatient Medical This section reviews the financial performance of the company's Outpatient Medical segment, including rental income, leasing activity, and development commitments Outpatient Medical NOI and SSNOI (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | NOI | $101,295 | $92,168 | $9,127 | 10% | | SSNOI | $87,697 | $86,797 | $900 | 1% | Outpatient Medical Revenues and Net Income (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Rental income | $149,052 | $136,538 | $12,514 | 9% | | Total revenues | $149,461 | $136,671 | $12,790 | 9% | | Net income (loss) from continuing operations | $47,537 | $247,150 | $(199,613) | -81% | - New leases and renewals signed in Q1 2019 totaled 117,824 square feet and 378,482 square feet, respectively, with a weighted-average term of seven years[178] - Pending Outpatient Medical construction projects as of March 31, 2019, total 269,455 square feet with a commitment of $149,561,000[180] Non-Segment/Corporate This section reports on financial items not allocated to specific operating segments, such as corporate expenses, interest, and other income/losses Non-Segment/Corporate Results of Operations (Three Months Ended March 31, in thousands) | Metric | 2019 | 2018 | Change ($) | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | :--------- | | Other income | $2,157 | $368 | $1,789 | 486% | | Interest expense | $120,193 | $100,722 | $19,471 | 19% | | Loss from continuing operations before income taxes and other items | $(171,064) | $(136,241) | $(34,823) | 26% | | Preferred stock dividends | $0 | $11,676 | $(11,676) | -100% | - The loss on extinguishment of debt of $15,719,000 in Q1 2019 was due to the early extinguishment of $600,000,000 of 4.125% senior unsecured notes due 2019 and $450,000,000 of 6.125% senior unsecured notes due 2020[186] Other This section covers additional financial disclosures, including non-GAAP measures, critical accounting policies, and forward-looking statements Non-GAAP Financial Measures This section explains the company's use of non-GAAP metrics like FFO, NOI, and EBITDA to provide supplemental insights into operational and credit performance - The company uses non-GAAP financial measures such as FFO, NOI, SSNOI, EBITDA, and Adjusted EBITDA to supplement U.S. GAAP earnings measurements, providing additional information for evaluating operating performance and credit strength[188][189][190][191] - FFO is defined as NICS, excluding gains/losses from real estate sales and impairment, plus depreciation and amortization, adjusted for unconsolidated entities and noncontrolling interests[188] - Adjusted EBITDA is used to measure the adjusted fixed charge coverage ratio, which must be at least 1.50 times per debt covenants[190] Critical Accounting Policies This section identifies the accounting policies that require significant judgment and estimation, highlighting their potential impact on financial reporting - Financial statements are prepared in accordance with U.S. GAAP, requiring estimates and assumptions that are considered critical if they involve high subjectivity and judgment, and have a material impact on financial condition or operating performance[203] - Management believes current assumptions are appropriate, but acknowledges the risk of material adverse effects if actual experience differs from these assumptions[203] - There have been no material changes to the company's critical accounting policies in 2019[203] Cautionary Statement Regarding Forward-Looking Statements This section warns readers about the inherent risks and uncertainties associated with forward-looking statements, which may cause actual results to differ - This report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially from expectations[204] - Risk factors include economic conditions, capital markets, healthcare industry issues, financing terms, competition, operator/tenant performance, acquisitions/dispositions, natural disasters, regulatory changes, and the company's ability to maintain REIT qualification[204] - The company undertakes no obligation to update or revise publicly any forward-looking statements[204] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily from interest rate and foreign currency exchange rate fluctuations, and outlines strategies to mitigate these risks through hedging and matching financing terms - The company is exposed to market risks from changes in interest rates and foreign currency exchange rates[205] - Strategies to mitigate risk include using derivative financial instruments to hedge foreign currency exposures and matching new investments with long-term fixed rate borrowings[205] - A hypothetical 1% increase in interest rates would result in an increased annual interest expense of $22,017,000 for variable rate debt as of March 31, 2019[208] - A hypothetical 10% increase or decrease in Canadian Dollar or Pounds Sterling exchange rates would impact net income by less than $12,000,000[209] Item 4. Controls and Procedures Management, under the supervision of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they are effective, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2019[210] - No material changes in internal control over financial reporting occurred during the fiscal quarter[210] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, but management believes none will have a material adverse effect on its business, results of operations, or financial condition, with third parties contractually obligated to indemnify the company in some matters - The company is subject to various legal proceedings arising in the ordinary course of business[212] - Management does not believe that the resolution of any of these legal proceedings, individually or in the aggregate, will have a material adverse effect[215] - Third parties are contractually obligated to indemnify, defend, and hold the company harmless in certain legal matters[212] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously identified in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes from the risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2018[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuer's purchases of equity securities during the first quarter of 2019, primarily shares acquired from employees to satisfy tax withholding obligations, with no purchases made under publicly announced plans Issuer Purchases of Equity Securities (Three Months Ended March 31, 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--------------------------------------- | :----------------------------- | :--------------------------- | | January 1, 2019 through March 31, 2019 | 80,778 | $74.13 | - Shares were acquired from employees who tendered owned shares to satisfy tax withholding obligations[217] - No shares were purchased as part of publicly announced plans or programs[218] Item 5. Other Information This section reports a First Amendment to the Credit Agreement, dated April 26, 2019, which removed the 'Material Adverse Event' clause as an event of default from the primary unsecured credit facility - On April 26, 2019, a First Amendment to the Credit Agreement was entered into[219] - This amendment deleted Section 8.01(i), which previously constituted a 'Material Adverse Event' as an event of default under the primary unsecured credit facility[219] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including supplemental indentures, credit agreement amendments, and various certifications - Exhibits include Supplemental Indenture No. 15, First Amendment to the Credit Agreement, and Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer[225] SIGNATURES This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report - The report was signed on April 30, 2019, by Thomas J. DeRosa (Chief Executive Officer), John A. Goodey (Executive Vice President & Chief Financial Officer), and Joshua T. Fieweger (Senior Vice President & Controller)[225]