Welltower
Annual Report 2016

Plain-text annual report

ANNUAL REPORT 2 0 1 6 LETTER FROM THE CEO Dear Shareholders, 2016 was a year of significant accomplishments and important transitions. We repositioned our portfolio to strengthen our focus on premium private pay health care real estate, continued to invest in the best markets with the best operating partners, and reinforced the strength of our balance sheet. The power of our unique operating We believe there will always be a place platform continues to allow us to identify for post-acute and long-term care Thomas J. DeRosa CEO, Welltower Inc. and capture significant efficiencies and high-quality growth opportunities as health care delivery transitions from a fee-for-service to a value-based model. Successful Portfolio Repositioning facilities in the overall health care delivery continuum, particularly as health systems evolve care delivery away from high-cost hospital settings. However, the value of these assets in the public markets today is constrained by uncertainty surrounding government funding for Medicare and Central to our recent efforts has been the Medicaid in the U.S. In light of this, it is disposition of non-strategic assets, most in the best interests of our shareholders notably the sale of a portfolio of long- to be selective in our exposure to term/post-acute care facilities master certain asset classes and operators and leased to Genesis Healthcare, Inc. and to proactively recycle capital to best seniors housing properties master leased position our portfolio, thereby limiting to Brookdale Senior Living Inc. These our risk exposure. strategic moves further deleveraged our balance sheet, drove a significant The sale of Genesis and Brookdale assets increase in our private pay revenue mix mentioned earlier to a joint venture to 92.8% and reduced our long-term/ with Cindat Capital Management and post-acute care concentration to 13.3%*. Union Life Insurance Co. Ltd. marked yet We expect to generate a further $2 billion another milestone in our ability to attract of disposition proceeds in 2017 after non-U.S. institutional capital – an investor generating $2.8 billion in 2016. class that historically has been absent from the U.S. health care real estate seniors housing communities run by sector. The $930 million transaction is great operators. Our Board of Directors the latest example of how we’ve aligned declared a cash dividend for the quarter with new capital partners who see ended December 31, 2016 of $0.87 per aging demographics and health care share and on February 21, 2017, we paid trends that drive the need for innovative our 183rd consecutive quarterly cash infrastructure as an attractive global dividend. investment theme. Welltower executed the industry’s first partnership with a non-U.S. institutional partner in 2014 with Canada’s Public Sector Pension Investment Board (PSP Investments) and followed in 2015 with two significant investments with the Canada Pension Plan Investment Board (CPPIB), one of the world’s largest public pension funds. Welltower’s Welltower’s ability to attract new sources of long-term institutional capital into the health care real estate asset class reaffirms the quality of our platform and our strategy. We’re proud of our strong balance sheet and ended the year with a net debt to undepreciated book capitalization ratio of 37.4% (an improvement of 210 basis points from 2015) and a net debt to adjusted EBITDA ratio of 5.4 times*. Our successful portfolio repositioning and deleveraging efforts, along with our strong ability to attract new sources of long- balance sheet speak for themselves term institutional capital into the health and were recognized in credit rating care real estate asset class reaffirms the upgrades from both Moody’s and quality of our platform and our strategy. Standard and Poor’s to Baa1 and BBB+, Another Strong Year of Financial Performance Welltower delivered solid financial results in 2016 led by average total portfolio same store NOI growth of 3% and a 4% increase in normalized funds from operations per diluted share.* We have enjoyed strong pricing power throughout 2016 in the U.S., U.K. and Canada because consumers in major respectively. These upgrades translate into added value for our shareholders through a reduced cost of capital. We once again enhanced our financial flexibility with an increased, extended and lower-priced credit facility to $3.7 billion. Best Assets with the Best Operators in the Best Markets Our portfolio is of approximately 1,400 metro markets want to live in modern properties concentrated in major, high- growth markets in the U.S., Canada and by Welltower’s proprietary data and the U.K. and includes facilities in and systems that leverage our scale and drive around large metropolitan areas namely down operating costs, represent one of Los Angeles, New York, Seattle, London the unique advantages of our platform. and Toronto. We established a key tenet Together, we are better positioned to of our investment approach years ago drive occupancy and profitability while to target markets where there is job also supporting outstanding levels of creation and population and income service and care to building residents. growth. When seniors housing was first introduced, it was largely built where In 2016, we took our vision older people lived – suburbs and Sunbelt for aging and living well states. But the aging population today increasingly wants to live in or near to an urban market that is dramatically underserved major cities. Welltower’s seniors housing in quality residential operating presence in top metro markets on the U.S. East and West coasts, as well as in Canada and the U.K., creates a distinct competitive advantage for us. care options for frail and demented elderly — New York City. Together with the global real estate development company Our strategy, rooted in long-term Hines, we announced the operating partner relationships, is a development of a 16-story continued source of differentiation that assisted living and memory cannot be easily replicated. The Vintage care community at the transaction in 2016 is representative corner of East 56th Street of how we operationalize our strategic and Lexington Avenue focus on premium properties with in Midtown Manhattan. best-in-class operators in high barrier- Demographic trends point to-entry markets. The $3 billion of pro to significant growth in New rata gross investments we made in 2016 York City’s elderly population included the $1.15 billion acquisition over the next decade and of the Vintage Senior Living portfolio the current availability of of 19 seniors housing properties assisted living is five times concentrated in premier locations in less than the national We are very fortunate to work with partners who share our vision to connect senior care with health care provider networks to coordinate patient care, and ultimately deliver better outcomes at a lower cost. Northern and Southern California. The average. Welltower is proud to be at mix of independent living, assisted living the forefront of developing senior living and memory care assets was easily environments with the latest innovations transitioned to three of our leading focused on residents’ needs for cognitive partners – Senior Resource Group, engagement, mobility and nutrition, Sunrise Senior Living and Silverado and continued access to neighborhoods Senior Living – who already operate and cultural institutions the city has to in these West coast markets. These offer. The community is expected to be well respected operators, supported completed in late 2019. Driving Collaboration Across the Health Care Continuum Medicine in Baltimore, MD. With over 250 properties and 17 million square We are very fortunate to work with partners who share our vision to connect senior care with health care provider networks to coordinate patient care, and ultimately deliver better outcomes at a lower cost. Our commitment is more important now than ever: We live in a world where 65 to 85-year-old adults are the fastest growing population in most developed countries. As people age, they tend to have chronic diseases and multiple health problems, requiring complex and integrated treatment and care. We need to build infrastructure that accommodates this demographic reality – out of economic necessity as well as for the sustainability of how health care is delivered. Health care is still in its early days of transitioning to lower acuity settings Moving forward, we are committed to using our capabilities, expertise, resources and partnerships to help make the world a place where future generations not only live longer, but are better able to live well. and to more connected networks of micro- hospitals, outpatient medical and post- acute care centers, as well as assisted living and memory care communities. Welltower’s full-service outpatient medical management group already serves many of the nation’s top health and hospital systems including: Memorial Hermann in Houston, TX; Virtua in the suburbs of Philadelphia, PA and Johns Hopkins feet of space, we are one of the largest owner/operators of this highly-desirable asset class. As health systems realize that building out their ambulatory care strategies will require significant new inflows of capital combined with operating expertise in modern health care and seniors housing settings, Welltower is optimally positioned to be their partner of choice. Increasing our Impact – Advocacy and Sustainability We believe influencing society’s existing value system regarding the elderly and their care will increase quality of life and dignity for the aging population – regardless of whether people choose to “age in place” or live in one of our communities. It was with this conviction that we launched the Welltower Foundation to support organizations and innovations that promote wellness and improve care for people as they age. The foundation launched with a $250,000 grant to the Alzheimer’s Association in support of its National Brain Ball, an event designed to elevate the profile of Alzheimer’s disease and its impact on families. I’m tremendously proud of efforts by Welltower employees and operating partners who went on to raise in excess of $3 million towards this very important cause. Moving forward, we are committed to using our capabilities, expertise, resources and partnerships to help make the world a place where future generations not only live longer, but are top-quality investments through our better able to live well. partner network. Our targeted capital Sustainability plays a key role in how we intend to drive the evolution of health care infrastructure. Through responsible business practices and a allocation strategies have resulted in resilient operating performance and we will continue to maintain capital discipline and fine-tune our portfolio to drive superior full-cycle returns for our shareholders. focus on sustainability and conservation, we create optimal environments for health and wellness. In 2016, we achieved a significant milestone as Welltower was added to the Dow Jones North America Sustainability Index. We were also recognized on the Leadership Band for the CDP (formerly Welltower is uniquely positioned at the intersection of two dynamic trends: the aging of the population and the transition to value- based health care. We could not be more excited about the opportunities in the year ahead. Welltower is uniquely positioned at the intersection of two dynamic trends: the aging of the population and the transition to value- based health care. We have the best seniors housing real estate the “Carbon Disclosure Project”). We and operating platform, an outstanding continue to look for ways to reduce national outpatient medical management our environmental footprint including business and unmatched opportunities through this newly designed Annual to own the real estate that will drive Report. Determined to Deliver health care delivery forward. With the guidance of our Board of Directors, the leadership of our management team and the commitment of our employees, we We began 2017 with a corporate are more determined than ever to deliver reorganization that is rationalizing and value and earn your confidence. reinventing the way we do business. We have created a leaner, more integrated Sincerely, and efficient structure so that we can effectively utilize the power of our unique platform. Our financial priorities heading into the new year are to maintain our balance sheet strength Thomas J. DeRosa and find new and improved ways to CEO, Welltower Inc. drive growth, operating efficiencies and cash flows, while continuing to source * Please see Non-GAAP Reconciliations LETTER FROM THE CHAIRMAN Dear Shareholders, I am pleased to report that Welltower had an especially successful and productive 2016. The Company is evermore at the forefront of innovative partnerships and investments in health care infrastructure. The assets held, and being created or acquired, encompass the physical and social environments necessary to promote wellness while driving the transition to value-based care. Investing in the best assets, in the best markets and with the best partners, has enabled us to build a unique platform for driving both near-term performance and long-term value. We are convinced that now, more than ever, our very talented team is well positioned to help transform health care infrastructure and drive health care delivery costs to new, lower levels. As announced earlier this year, a reorganized leadership team is now in place under the direction of our Chief Executive Officer Thomas J. DeRosa. We believe that this team, and the Company’s new organizational structure, will drive further opportunities for delivering superior returns to our shareholders. The Board of Directors extended Tom’s contract for an additional three years, through April 2020. During his first three years at the helm, Tom has delivered strong financial and operating results along with a dramatic improvement in the Company’s balance sheet. At the same time, Tom has emerged as a global advocate for the ability of innovative, modern real estate partnerships and settings to promote wellness and improved outcomes. Jeffrey H. Donahue Chairman, Welltower Inc. Looking ahead, the Board believes that, under the leadership of Tom and his excellent team, the Company is well prepared to take on the challenges of improving health care delivery through our unique platform and portfolio of premium health care real estate. This is inherently a value-creating process and should prove to be highly beneficial to our shareholders. The Board is very confident that the Company is well positioned to deliver consistent, long-term earnings growth while driving positive change across the spectrum of health care real estate assets and delivery systems. Thank you for your continuing support of our work. Sincerely, Jeffrey H. Donahue Chairman, Welltower Inc. NON-GAAP RECONCILIATIONS We believe net income attributable to common stockholders (NICS), as defined by U.S. generally accepted accounting principles (U.S. GAAP), is the most appropriate earnings measurement. However, we consider Normalized Funds From Operations (N-FFO), Adjusted EBITDA (A-EBITDA), In-Place Net Operating Income (IPNOI) and Same Store Net Operating Income (SSNOI) to be useful supplemental measures of its operating performance. Excluding A-EBITDA, these supplemental measures are disclosed on our pro rata ownership basis. Pro rata amounts are derived by reducing consolidated amounts for minority partners’ noncontrolling ownership interests and adding our minority ownership share of unconsolidated amounts. We do not control unconsolidated investments. While we consider pro rata disclosures useful, they may not accurately depict the legal and economic implications of our joint venture arrangements and should be used with caution. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (NAREIT) created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means net income attributable to common stockholders, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairments of depreciable assets, plus real estate depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests. N-FFO represents FFO adjusted for certain items as detailed in the reconciliations. We believe that N-FFO is a useful supplemental measure of operating performance because investors and equity analysts may use this measure to compare the operating performance of the company between periods or as compared to other REITs or other companies on a consistent basis without having to account for differences caused by unanticipated and/or incalculable items. or non-cash income/charges. We believe that EBITDA and A-EBITDA, along with net income and cash flow provided from operating activities, are important supplemental measures because they provide additional information to assess and evaluate the performance of our operations. Net operating income (NOI) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our seniors housing operating and outpatient medical properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations or transaction costs. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. IPNOI represents NOI excluding interest income, other income and non-cash NOI and adjusted for timing of current quarter portfolio changes such as acquisitions, development conversions, segment transitions, dispositions and investments held for sale. SSNOI is used to evaluate the operating performance of our properties under a consistent population which eliminates changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over- year reporting periods. Land parcels, loans and sub-leases as well as any properties acquired, developed/redeveloped, transitioned, sold or classified as held for sale during that period are excluded from the same store amounts. Normalizers include adjustments that in management’s opinion are appropriate in considering SSNOI, a supplemental, non-GAAP performance measure. None of these adjustments, which may increase or decrease SSNOI, are reflected in our financial statements prepared in accordance with U.S. GAAP. We believe SSNOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. EBITDA stands for earnings (net income per income statement) before interest expense, income taxes, depreciation and amortization. Covenants in our primary unsecured credit facility and senior unsecured notes contain financial ratios based on a definition of EBITDA that is specific to those agreements. Failure to satisfy these covenants could result in an event of default that could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these debt agreements and the financial covenants, we have defined A-EBITDA to include adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt, transactions costs, gains/losses/impairments on properties, gains/losses on derivatives and other non-recurring and/ Our supplemental reporting measures and similarly entitled financial measures are widely used by investors and equity analysts in the valuation, comparison and investment recommendations of companies. Our management uses these financial measures to facilitate internal and external comparisons to historical operating results and in making operating decisions. Additionally, they are utilized by the Board of Directors to evaluate management. The supplemental reporting measures do not represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental reporting measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies. Normalized FFO Reconciliations In thousands, except per share data Net income (loss) attributable to common stockholders Depreciation and amortization Losses/impairments (gains) on properties, net Noncontrolling interests and unconsolidated entities, net (1) Transaction costs Other expenses Nonrecurring income tax benefits Loss (gain) on extinguishments of debt, net Loss (gain) on derivatives, net Additional other income Provision for loan losses Normalized FFO Average diluted common shares outstanding Normalized FFO per diluted share Year-over-year increase Year Ended 12/31/2015 Year Ended 12/31/2016 $ 818,344 826,240 (278,167) $ 1,012,397 901,242 (326,840) 42,911 3,368 110,926 46,926 (5,430) 34,677 (58,427) (5,813) - 1,532,187 349,424 4.38 42,910 11,998 (15,675) 17,214 (2,448) (16,664) 10,215 1,637,717 360,227 4.55 4% $ $ $ $ Notes: (1) Represents net of noncontrolling interests' share of normalized FFO adjustments and Welltower's share of net FFO adjustments from unconsolidated entities. Adjusted EBITDA Reconciliation In thousands Net income Interest expense Income tax expense (benefit) Depreciation and amortization EBITDA Transaction costs Stock-based compensation Provision for loan losses Loss (gain) on extinguishment of debt, net Loss/impairment (gain) on sales of properties, net Loss (gain) on derivatives, net Other expenses(1) Additional other income A-EBITDA Net Debt to A-EBITDA Ratio: Total debt Less: cash and cash equivalents(2) Net debt A-EBITDA annualized Net debt to A-EBITDA ratio Notes: Excludes stock-based compensation. (1) (2) Includes IRC section 1031 deposits, if any. Three Months Ended 12/31/2016 $ 351,108 126,360 (16,585) 227,916 688,799 9,704 8,251 10,215 17,204 (186,978) 68 5,983 (4,853) 548,393 $ $ 12,358,245 $ (557,659) 11,800,586 2,193,572 5.4x In-Place Net Operating Income Reconciliation In thousands at Welltower pro rata ownership Seniors housing triple-net Long-term/post-acute care Seniors housing operating Outpatient medical Total annualized IPNOI Total current quarter IPNOI Interest income Other income Held for sale & dispositions Non IPNOI(1) Timing adjustments(2) Total current quarter NOI(3) 27.4% 13.3% 42.0% 17.3% 100.0% Three Months Ended 12/31/16 $ 535,112 259,792 822,932 338,648 1,956,484 x 1/4 489,121 23,689 6,657 48,611 13,111 (9,387) $ 571,802 Notes: (1) (2) (3) Primarily represents non-cash NOI. Represents timing adjustments for current quarter acquisitions, construction conversions and segment transitions. See SSNOI reconciliation. Same Store Net Operating Income Reconciliations In thousands Consolidated total revenues Consolidated property operating expenses Consolidated NOI Pro rata adjustments(1) Pro rata NOI Non-cash NOI at same store properties NOI attributable to non same store properties Currency and ownership adjustments(2) Normalizing adjustments, net(3) SSNOI Year-over-year SSNOI growth Three Months Ended $ 3/31/16 1,047,050 (449,636) 597,414 3/31/15 $ 894,177 (376,461) 517,716 6/30/16 $ 1,076,657 (458,832) 617,825 6/30/15 $ 957,169 (398,354) 558,815 $ 9/30/16 1,079,133 (473,680) 605,453 9/30/15 $ 978,997 (408,703) 570,294 $ 12/31/16 1,078,321 (494,835) 583,486 $ 12/31/15 1,029,484 (438,738) 590,746 (8,798) 588,616 (24,171) (96,944) 1,773 (1,735) 467,539 3.8% $ 8,186 525,902 (26,062) (47,614) (2,686) 750 450,290 $ (10,275) 607,550 (24,366) (90,858) 167 (4,809) 487,684 $ 3.3% 5,260 564,075 (29,355) (56,094) (4,461) (2,105) 472,060 $ (9,945) 595,508 (21,311) (96,841) 3,836 1,319 482,511 2.6% $ (3,605) 566,689 (25,092) (70,317) (1,660) 807 470,427 $ (11,684) 571,802 (16,085) (102,706) (5,572) (775) 446,664 2.3% $ (5,399) 585,347 (21,162) (114,908) (13,047) 487 436,717 $ Avg. 3.0% Notes: (1) (2) (3) Represents NOI amounts attributable to joint venture partners, both majority and minority, net. Includes adjustments to reflect consistent ownership percentages, adjustments to translate Canadian properties at a USD/CAD rate of 1.3495, and adjustments to translate U.K. properties at a GBP/USD rate of 1.4950. Includes adjustments for certain items that are described in our 2016 quarterly earnings supplements. Form 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 Commission File No. 1-8923 WELLTOWER INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 4500 Dorr Street, Toledo, Ohio (Address of principal executive offices) 34-1096634 (I.R.S. Employer Identification No.) 43615 (Zip Code) (419) 247-2800 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $1.00 par value 6.50% Series I Cumulative Convertible Perpetual Preferred Stock, $1.00 par value 6.50% Series J Cumulative Redeemable Preferred Stock, $1.00 par value 4.800% Notes due 2028 4.500% Notes due 2034 New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes Í No ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ‘ No Í Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Í Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ (Do not check if a smaller reporting company) Smaller reporting company ‘ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í The aggregate market value of the shares of voting common stock held by non-affiliates of the registrant, computed by reference to the closing sales price of such shares on the New York Stock Exchange as of the last business day of the registrant’s most recently completed second fiscal quarter was $27,176,263,145. As of January 31, 2017, the registrant had 362,558,457 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant’s definitive proxy statement for the annual stockholders’ meeting to be held May 4, 2017, are incorporated by reference into Part III. WELLTOWER INC. 2016 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 13. Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . . . Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2 31 42 43 45 45 46 48 49 76 78 121 121 123 123 123 123 123 123 Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124 PART IV Item 1. Business General PART I Welltower Inc. (NYSE:HCN), 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 real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. WelltowerTM, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets. More information is available on the Internet at www.welltower.com. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only. Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund operations, meet debt service obligations (both principal and interest), make dividend distributions and complete construction projects in process. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt. References herein to “we,” “us,” “our” or the “Company” refer to Welltower Inc. and its subsidiaries unless specifically noted otherwise. Portfolio of Properties Please see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operation — Executive Summary — Company Overview” for a table that summarizes our portfolio as of December 31, 2016. Property Types We invest in seniors housing and health care real estate and evaluate our business on three reportable segments: triple-net, seniors housing operating and outpatient medical. For additional information regarding our segments, please see Note 17 to our consolidated financial statements. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to our consolidated financial statements. The following is a summary of our various property types. Triple-Net Our triple-net properties include independent living facilities and independent supportive living facilities (Canada), continuing care retirement communities, assisted living facilities, care homes with and without nursing (United Kingdom), Alzheimer’s/dementia care facilities and long-term/post-acute care facilities. We invest primarily through acquisitions, development and joint venture partnerships. Our properties are primarily leased to 2 operators under long-term, triple-net master leases. We are not involved in property management. Our properties include stand-alone facilities that provide one level of service, combination facilities that provide multiple levels of service, and communities or campuses that provide a wide range of services. Independent Living Facilities and Independent Supportive Living Facilities (Canada). Independent living facilities and independent supportive living facilities are age-restricted, multifamily properties with central dining linen service, facilities that provide residents access to meals and other services such as housekeeping, transportation and social and recreational activities. Continuing Care Retirement Communities. Continuing care retirement communities typically include a combination of detached homes, an independent living facility, an assisted living facility and/or a long-term/post- acute care facility on one campus. These communities appeal to residents because there is no need to relocate when health and medical needs change. Resident payment plans vary, but can include entrance fees, condominium fees and rental fees. Many of these communities also charge monthly maintenance fees in exchange for a living unit, meals and some health services. Assisted Living Facilities. Assisted living facilities are state regulated rental properties that provide the same services as independent living facilities, but also provide supportive care from trained employees to residents who require assistance with activities of daily living, including, but not limited to, management of medications, bathing, dressing, toileting, ambulating and eating. Care Homes with Nursing (United Kingdom). Care homes with nursing, regulated by the Care Quality Commission are licensed daily rate or rental properties where the majority of individuals require 24-hour nursing and/or medical care. Generally, these properties are licensed for various national and local reimbursement programs. Unlike the U.S., care homes with nursing in the U.K. generally do not provide post-acute care. Care Homes (United Kingdom). Care homes, regulated by the Care Quality Commission, are rental properties that provide essentially the same services as U.S. assisted living facilities. Alzheimer’s/Dementia Care Facilities. Certain assisted living facilities may include state-licensed settings that specialize in caring for those afflicted with Alzheimer’s disease and/or other types of dementia. Long-Term/Post-Acute Care Facilities. Our long-term/post-acute care facilities generally include skilled nursing/post-acute care facilities, inpatient rehabilitation facilities and long-term acute care facilities. Skilled nursing/post-acute care facilities are licensed daily rate or rental properties where the majority of individuals require 24-hour nursing and/or medical care. Generally, these properties are licensed for Medicaid and/or Medicare reimbursement in the U.S. or provincial reimbursement in Canada. All facilities offer some level of rehabilitation services. Some facilities focus on higher acuity patients and offer rehabilitation units specializing in cardiac, orthopedic, dialysis, neurological or pulmonary rehabilitation. Inpatient rehabilitation facilities provide inpatient services for patients with intensive rehabilitation needs. Long-term acute care facilities provide inpatient services for patients with complex medical conditions that require more intensive care, monitoring or emergency support than is available in most skilled nursing/post-acute care facilities. Our triple-net segment accounted for 28%, 31% and 31% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively. We lease 85 facilities to Genesis Healthcare, LLC, an operator of long-term/post-acute care facilities, pursuant to a long-term, triple-net master lease. In addition to rent, the master lease requires Genesis to pay all operating costs, utilities, real estate taxes, insurance, building repairs, maintenance costs and all obligations under certain ground leases. All obligations under the master lease have been guaranteed by FC-GEN Operations Investment, LLC, a subsidiary of Genesis Healthcare, LLC. For the year ended December 31, 2016, our lease with Genesis accounted for approximately 27% of our triple-net segment revenues and 8% of our total revenues. Seniors Housing Operating Our seniors housing operating properties include several of the facility types described in “Item 1 — Business — Property Types — Triple-Net”, including independent living facilities and independent supportive living facilities, assisted living facilities, care homes and Alzheimer’s/dementia care facilities. Properties are 3 primarily held in consolidated joint venture entities with operating partners. We utilize the structure proposed in the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). See Note 18 to our consolidated financial statements for more information. Our seniors housing operating segment accounted for 59%, 56% and 57% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively. We have relationships with 16 operators to own and operate 420 facilities (plus 69 unconsolidated facilities). In each instance, our partner provides management services to the properties pursuant to an incentive-based management contract. We rely on our partners to effectively and efficiently manage these properties. For the year ended December 31, 2016, our relationship with Sunrise Senior Living accounted for approximately 40% of our seniors housing operating segment revenues and 23% of our total revenues. Outpatient Medical Our outpatient medical properties include outpatient medical buildings and, prior to June 30, 2015, life science facilities. We typically lease our outpatient medical buildings to multiple tenants and provide varying levels of property management. Our life science investment represented an investment in an unconsolidated joint venture entity. Our outpatient medical segment accounted for 13%, 13% and 12% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively. No single tenant exceeds 20% of segment revenues. Outpatient Medical Buildings. The outpatient medical building portfolio consists of health care related buildings that generally include physician offices, ambulatory surgery centers, diagnostic facilities, outpatient services and/or labs. Our portfolio has a strong affiliation with health systems. Approximately 95% of our outpatient medical building portfolio is affiliated with health systems (with buildings on hospital campuses or serving as satellite locations for the health system and its physicians). Life Science Facilities. The life science portfolio consisted of laboratory and office facilities specifically designed and constructed for use by biotechnology and pharmaceutical companies. These facilities were located adjacent to The Massachusetts Institute of Technology, which is a well-established market known for pharmaceutical and biotechnology research. They are similar to commercial office buildings with advanced HVAC (heating, ventilation and air conditioning), electrical and mechanical systems. On June 30, 2015, we disposed of our life science investments. Investments Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. We invest in seniors housing and health care real estate primarily through acquisitions, developments and joint venture partnerships. For additional information regarding acquisition and development activity, please see Note 3 to our consolidated financial statements. We diversify our investment portfolio by property type, relationship and geographic location. In determining whether to invest in a property, we focus on the following: (1) the experience of the obligor’s/partner’s management team; (2) the historical and projected financial and operational performance of the property; (3) the credit of the obligor/partner; (4) the security for any lease or loan; (5) the real estate attributes of the building and its location; (6) the capital committed to the property by the obligor/partner; and (7) the operating fundamentals of the applicable industry. We conduct market research and analysis for all potential investments. In addition, we review the value of all properties, the interest rates and covenant requirements of any facility-level debt to be assumed at the time of the acquisition and the anticipated sources of repayment of any existing debt that is not to be assumed at the time of the acquisition. We monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors statements and other operating data for each property, 4 the outpatient medical portfolio with a comprehensive process including review of, among other things, tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment. Investment Types Real Property. Our properties are primarily comprised of land, buildings, improvements and related rights. Our triple-net properties are generally leased to operators under long-term operating leases. The leases generally have a fixed contractual term of 12 to 15 years and contain one or more five to 15-year renewal options. Certain of our leases also contain purchase options, a portion of which could result in the disposition of properties for less than full market value. Most of our rents are received under triple-net leases requiring the operator to pay rent and all additional charges incurred in the operation of the leased property. The tenants are required to repair, rebuild and maintain the leased properties. Substantially all of these operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. At December 31, 2016, approximately 92% of our triple-net properties were subject to master leases. A master lease is a lease of multiple properties to one tenant entity under a single lease agreement. From time to time, we may acquire additional properties that are then leased to the tenant under the master lease. The tenant is required to make one monthly payment that represents rent on all the properties that are subject to the master lease. Typically, the master lease tenant can exercise its right to purchase the properties or to renew the master lease only with respect to all leased properties at the same time. This bundling feature benefits us because the tenant cannot limit the purchase or renewal to the better performing properties and terminate the leasing arrangement with respect to the poorer performing properties. This spreads our risk among the entire group of properties within the master lease. The bundling feature should provide a similar advantage to us if the master lease tenant is in bankruptcy. Subject to certain restrictions, a debtor in bankruptcy has the right to assume or reject each of its leases. It is our intent that a tenant in bankruptcy would be required to assume or reject the master lease as a whole, rather than deciding on a property by property basis. Our outpatient medical portfolio is primarily self-managed and consists principally of multi-tenant properties leased to health care providers. Our leases typically include increasers and some form of operating expense reimbursement by the tenant. As of December 31, 2016, 80% of our portfolio included leases with full pass through, 17% with a partial expense reimbursement (modified gross) and 3% with no expense reimbursement (gross). Our outpatient medical leases are non-cancellable operating leases that have a weighted- average remaining term of seven years at December 31, 2016 and are often credit enhanced by security deposits, guaranties and/or letters of credit. Construction. We occasionally provide for the construction of properties for tenants as part of long-term operating leases. We capitalize certain interest costs associated with funds used for the construction of properties owned by us. The amount capitalized is based upon the amount advanced during the construction period using the rate of interest that approximates our Company-wide cost of financing. Our interest expense is reduced by the amount capitalized. We also typically charge a transaction fee at the commencement of construction which we defer and amortize to income over the term of the resulting lease. The construction period commences upon funding and terminates upon the earlier of the completion of the applicable property or the end of a specified period. During the construction period, we advance funds to the tenants in accordance with agreed upon terms and conditions which require, among other things, periodic site visits by a Company representative. During the in the form of payment and construction period, we generally require an additional credit enhancement 5 performance bonds and/or completion guaranties. At December 31, 2016, we had outstanding construction investments of $506,091,000 and were committed to provide additional funds of approximately $493,972,000 to complete construction for investment properties. Real Estate Loans. Our real estate loans are typically structured to provide us with interest income, principal amortization and transaction fees and are generally secured by first/second mortgage liens, leasehold mortgages, corporate guaranties and/or personal guaranties. At December 31, 2016, we had outstanding real estate loans of $622,627,508. The interest yield averaged approximately 9.5% per annum on our outstanding real estate loan balances. Our yield on real estate loans depends upon a number of factors, including the stated interest rate, average principal amount outstanding during the term of the loan and any interest rate adjustments. The real estate loans outstanding at December 31, 2016 are generally subject to one to 15-year terms with principal amortization schedules and/or balloon payments of the outstanding principal balances at the end of the term. Typically, real estate loans are cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates. 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. Our investments in unconsolidated entities generally represent interests ranging from 10% to 50% in real estate assets. Under the equity method of accounting, our share of the investee’s earnings or losses is included in our consolidated results of operations. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest or the estimated fair value of the assets prior to the sale of interests in the entity. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded. See Note 7 to our consolidated financial statements for more information. Principles of Consolidation The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation. At inception of joint venture 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, requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance. For investments in joint ventures, 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. Borrowing Policies We utilize a combination of debt and equity to fund investments. Our debt and equity levels are determined by management to maintain a conservative balance sheet and credit profile. Generally, we intend to issue 6 unsecured, fixed-rate public debt with long-term maturities to approximate the maturities on our triple-net leases and investment strategy. For short-term purposes, we may borrow on our primary unsecured credit facility. We replace these borrowings with long-term capital such as senior unsecured notes or common stock. When terms are deemed favorable, we may invest in properties subject to existing mortgage indebtedness. In addition, we may obtain secured financing for unleveraged properties in which we have invested or may refinance properties acquired on a leveraged basis. In certain agreements with our lenders, we are subject to restrictions with respect to secured and unsecured indebtedness. Competition We compete with other real estate investment trusts, real estate partnerships, private equity and hedge fund investors, banks, insurance companies, finance/investment companies, government-sponsored agencies, taxable and tax-exempt bond funds, health care operators, developers and other investors in the acquisition, development, leasing and financing of health care and seniors housing properties. We compete for investments based on a number of factors including relationships, certainty of execution, investment structures and underwriting criteria. Our ability to successfully compete is impacted by economic and demographic trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment terms, availability and cost of capital, construction and renovation costs and applicable laws and regulations. The operators/tenants of our properties compete with properties that provide comparable services in the local markets. Operators/tenants compete for patients and residents based on a number of factors including quality of care, reputation, physical appearance of properties, location, services offered, family preferences, physicians, staff and price. We also face competition from other health care facilities for tenants, such as physicians and other health care providers that provide comparable facilities and services. For additional information on the risks associated with our business, please see “Item 1A — Risk Factors” of this Annual Report on Form 10-K. Employees As of January 31, 2017, we had 466 employees. Credit Concentrations Please see Note 8 to our consolidated financial statements. Geographic Concentrations Please see “Item 2 — Properties” of this Annual Report on Form 10-K and Note 17 to our consolidated financial statements. Health Care Industry The demand for health care services, and consequently health care properties, is projected to reach unprecedented levels in the near future. The Centers for Medicare and Medicaid Services (“CMS”) projects that national health expenditures will rise to approximately $3.5 trillion in 2017 or 18.2% of gross domestic product. The average annual growth in national health expenditures for 2015 through 2025 is expected to be 5.8%. While demographics are the primary driver of demand, economic conditions and availability of services contribute to health care service utilization rates. We believe the health care property market may be less susceptible to fluctuations and economic downturns relative to other property sectors. Investor interest in the market remains strong, especially in specific sectors such as private-pay senior living and outpatient medical buildings. The total U.S. population for 2015 through 2025 is projected to increase by 9.3%. The elderly population aged 65 and over is projected to increase by 36% through 2025. The elderly are an important component of health care utilization, especially independent living services, assisted living services, long-term/post-acute care services, inpatient and outpatient hospital services and physician ambulatory care. Most health care services are provided within a health care facility such as a hospital, a physician’s office or a seniors housing community. Therefore, we believe there will be continued demand for companies, such as ours, with expertise in health care real estate. Health care real estate investment opportunities tend to increase as demand for health care services increases. We recognize the need for health care real estate as it correlates to health care service demand. Health care providers require real estate to house their businesses and expand their services. We believe that investment opportunities in health care real estate will continue to be present due to: • The specialized nature of the industry, which enhances the credibility and experience of the Company; 7 • The projected population growth combined with stable or increasing health care utilization rates, which ensures demand; and • The on-going merger and acquisition activity. Certain Government Regulations United States Health Law Matters — Generally Typically, operators of seniors housing facilities do not receive significant funding from government programs and are largely subject to state laws, as opposed to federal laws. Operators of long-term/post-acute care facilities and hospitals do receive significant funding from government programs, and these facilities are subject to the federal and state laws that regulate the type and quality of the medical and/or nursing care provided, ancillary services (e.g., respiratory, occupational, physical and infusion therapies), qualifications of the administrative personnel and nursing staff, the adequacy of the physical plant and equipment, reimbursement and rate setting and operating policies. In addition, as described below, operators of these facilities are subject to extensive laws and regulations pertaining to health care fraud and abuse, including, but not limited to, the federal Anti-Kickback Statute (“AKS”), the federal Stark Law (“Stark Law”), and the federal False Claims Act (“FCA”), as well as comparable state laws. Hospitals, physician group practice clinics, and other health care providers that operate in our portfolio are subject to extensive federal, state, and local licensure, registration, certification, and inspection laws, regulations, and industry standards. Our tenants’ failure to comply with any of these, and other, laws could result in, among other things, loss of accreditation; denial of reimbursement; imposition of fines; suspension, decertification, or exclusion from federal and state health care programs; loss of license; or closure of the facility. See Risk Factors “The requirements of, or changes to, governmental reimbursement programs, such as Medicare or Medicaid, could have a material adverse effect on our obligors’ liquidity, financial condition and results of operations, which could adversely affect our obligors’ ability to meet their obligations to us” and “Our operators’ or tenants’ failure to comply with federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards could adversely affect such operators’ or tenants’ operations, which could adversely affect our operators’ and tenants’ ability to meet their obligations to us” below. Licensing and Certification The primary regulations that affect long-term and post-acute care facilities are state licensing and registration laws. For example, certain health care facilities are subject to a variety of licensure and certificate of need (“CON”) laws and regulations. Where applicable, CON laws generally require, among other requirements, that a facility demonstrate the need for (1) constructing a new facility, (2) adding beds or expanding an existing facility, (3) investing in major capital equipment or adding new services, (4) changing the ownership or control of an existing licensed facility, or (5) terminating services that have been previously approved through the CON process. Certain state CON laws and regulations may restrict the ability of operators to add new properties or expand an existing facility’s size or services. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. With respect to licensure, generally our long-term/post-acute care facilities and acute care facilities are required to be licensed and certified for participation in Medicare, Medicaid, and other federal and state health care programs. The failure of our operators to maintain or renew any required license or regulatory approval as well as the failure of our operators to correct serious deficiencies identified in a compliance survey could require those operators to discontinue operations at a property. In addition, if a property is found to be out of compliance with Medicare, Medicaid, or other federal or state health care program conditions of participation, the property operator may be excluded from participating in those government health care programs. Reimbursement The reimbursement methodologies applied to health care facilities continue to evolve. Federal and state authorities have considered and may seek to implement new or modified reimbursement methodologies, 8 including value-based reimbursement methodologies that may negatively impact health care property operations. The impact of any such changes, if implemented, may result in a material adverse effect on our portfolio. No assurance can be given that current revenue sources or levels will be maintained. Accordingly, there can be no assurance that payments under a government health care program are currently, or will be in the future, sufficient to fully reimburse the property operators for their operating and capital expenses. • • Seniors Housing Facilities (excluding long-term/post-acute care facilities). Approximately 55% of our overall revenues for the year ended December 31, 2016 were attributable to U.S. seniors housing facilities. The majority of the revenues received by the operators of these facilities are from private pay sources. The remaining revenue source is primarily Medicaid under certain waiver programs. As of September 30, 2016, 15 of our 44 seniors housing operators received Medicaid reimbursement pursuant to Medicaid waiver programs. For the twelve months ended September 30, 2016, approximately 1.7% of the revenues at our seniors housing facilities were from Medicaid reimbursement. There can be no guarantee that a state Medicaid program operating pursuant to a waiver will be able to maintain its waiver status. Rates paid by self-pay residents are set by the facilities and are determined by local market conditions and operating costs. Generally, facilities receive a higher payment per day for a private pay resident than for a Medicaid beneficiary who requires a comparable level of care. The level of Medicaid reimbursement varies from state to state. Thus, the revenues generated by operators of our assisted living facilities may be adversely affected by payor mix, acuity level, changes in Medicaid eligibility, and reimbursement levels. In addition, a state could lose its Medicaid waiver and no longer be permitted to utilize Medicaid dollars to reimburse for assisted living services. Long-Term/Post-Acute Care Facilities. Approximately 13% of our overall revenues for the year ended December 31, 2016 were attributable to long-term/post-acute care facilities. The majority of the revenues received by the operators of these facilities are from the Medicare and Medicaid programs, with the balance representing reimbursement payments from private payors. Consequently, changes in federal or state reimbursement policies may adversely affect an operator’s ability to cover its expenses, including our rent or debt service. Long-term/post-acute care facilities are subject to periodic pre- and post-payment reviews, and other audits by federal and state authorities. A review or audit of a property operator’s claims could result in recoupments, denials, or delay of payments in the future. Due to the significant judgments and estimates inherent in payor settlement accounting, no assurance can be given as to the adequacy of any reserves maintained by our property operators to cover potential adjustments to reimbursements, or to cover settlements made to payors. Recent attention on billing practices, payments, and quality of care, or ongoing government pressure to reduce spending by government health care programs, could result in lower payments to long-term/post-acute care facilities and, as a result, may impair an operator’s ability to meet its financial obligations to us. • Medicare Reimbursement. For the twelve months ended September 30, 2016, approximately 39% of the revenues at our long-term/post-acute care facilities were paid by Medicare. Generally, long-term/post-acute care facilities are reimbursed under the Medicare Skilled Nursing Facility Prospective Payment System (“SNF PPS”), the Inpatient Rehabilitation Facility Prospective Payment System (“IRF PPS”), or the Long Term Care Hospital Prospective Payment System (“LTCH PPS”), which generally provide reimbursement based upon a predetermined fixed amount per episode of care and are updated by CMS, an agency of the Department of Health and Human Services (“HHS”) annually. CMS made some positive payment updates for fiscal year (“FY”) 2017 under the SNF PPS, the IRF PPS and the LTCH PPS, specifically: • On August 5, 2016, CMS published a final rule regarding FY 2017 Medicare payment policies and rates for skilled nursing facilities (“SNFs”). Under the final SNF rule, CMS projects that aggregate payments to SNFs will increase in FY 2017 by $920 million, or 2.4%, from payments in FY 2016. • On August 5, 2016, CMS published a final rule regarding FY 2017 Medicare payment policies and rates for inpatient rehabilitation facilities (“IRFs”). Under the rule, CMS estimates that aggregate payments to IRFs will increase in FY 2017 by $145 million, or 1.9%, relative to payments in FY 2016. 9 • On August 22, 2016, CMS published a final rule regarding FY 2017 Medicare payment policies and rates for long term care hospitals (“LTCHs”). As a result of the continuation of the phase-in of site neutral payment rates for specified cases in LTCHs, CMS projects FY 2017 Medicare payments to LTCHs will decrease by 7.1%, or approximately $363 million. Payment rates will increase by 0.7% for cases that qualify for the higher standard LTCH PPS rate. In response to a federal district court’s review of the “Two-Midnight” payment policy, CMS finalized its proposal to remove the 0.2% Medicare Part A hospital payment cut and also its effects for FYs 2014, 2015, and 2016 though an approximate 0.8% increase to FY 2017 payment rates. There is a risk under these payment systems that costs will exceed the fixed payments, or that payments may be set below the costs to provide certain items and services. In addition, the HHS Office of Inspector General has released recommendations to address SNF billing practices and Medicare payment rates. If followed, these recommendations regarding SNF payment reform may impact our tenants and operators. • Medicaid Reimbursement. For the twelve months ended September 30, 2016, approximately 33% of the revenues of long-term/post-acute care facilities were paid by Medicaid. Many states reimburse SNFs, for example, using fixed daily rates, which are applied prospectively based on patient acuity and the historical costs incurred in providing patient care. In most states, Medicaid does not fully reimburse the cost of providing services. Certain states are attempting to slow the rate of Medicaid growth by freezing rates or restricting eligibility and benefits. In addition, Medicaid reimbursement rates may decline if revenues in a particular state are not sufficient to fund budgeted expenditures. • Medicare Reimbursement for Physicians, Hospital Outpatient Departments, and Ambulatory Surgical Centers. Changes in reimbursement to physicians, Hospital Outpatient Departments (“HOPDs”), and Ambulatory Surgical Centers (“ASCs”) may further affect our tenants and operators. Generally, Medicare reimburses physicians under the Physician Fee Schedule, while HOPDs and ASCs are reimbursed under prospective payment systems. The Physician Fee Schedule and the HOPD and ASC prospective payment systems are updated annually by CMS. These annual Medicare payment regulations have resulted in lower net pay increases than providers of those services have often expected. In addition, Congress recently passed the Medicare and CHIP Reauthorization Act of 2015 (“MACRA”), which includes payment reductions for providers who do not meet government quality standards. The implementation of pay-for-quality models like those required under MACRA is expected to produce funding disparities that could adversely impact some provider tenants in medical buildings and other health care properties. Changes in Medicare Advantage plan payments may also indirectly affect our operators and tenants that contract with Medicare Advantage plans. • Health Reform Laws. On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Laws”), which dramatically altered how health care is delivered and reimbursed in the United States and contained various provisions, including Medicaid expansion and the establishment of Health Insurance Exchanges providing subsidized health insurance, that may directly impact us or the operators and tenants of our properties. We expect the new Presidential Administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Health Reform Laws. Since taking office, President Trump has continued to support the repeal of all or portions of the Health Reform Laws. The House and Senate have recently passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Health Reform Laws and permits such legislation to pass with a majority vote in the Senate. President Trump has also recently issued an executive order in which he stated that is his Administration’s policy to seek the prompt repeal of the Health Reform Laws and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the Health Reform Laws to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trump’s Administration and the U.S. Congress may that it 10 have, if any, and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for health care items and services covered by plans that were authorized by the Health Reform Laws. We cannot predict whether the existing Health Reform Laws, or future health care reform legislation or regulatory changes, will have a material impact on our operators’ or tenants’ property or business. Fraud & Abuse Enforcement Long-term/post-acute care facilities (and seniors housing facilities that receive Medicaid payments) are subject to federal, state, and local laws, regulations, and applicable guidance that govern the operations and financial and other arrangements that may be entered into by health care providers. Certain of these laws, such as the AKS and Stark Law, prohibit direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for medical products or services reimbursable by government health care programs. Other laws require providers to furnish only medically necessary services and submit to the government valid and accurate statements for each service. Specifically, our operators and tenants that receive payments from federal healthcare programs, such as Medicare and Medicaid, are subject to substantial financial penalties under the Civil Monetary Penalties Act and the FCA and, in particular, actions under the FCA’s “whistleblower” provisions. Private enforcement of health care fraud has increased due in large part to amendments to the FCA that encourage private individuals to sue on behalf of the government. In addition, states may also have separate false claims acts, which, among other things, generally prohibit health care providers from filing false claims or making false statements to receive payments. Still other laws require providers to comply with a variety of safety, health and other requirements relating to the condition of the licensed property and the quality of care provided. Sanctions for violations of these laws, regulations, and other applicable guidance may include, but are not limited to, criminal and/or civil penalties and fines, loss of licensure, immediate termination of government payments, exclusion from any government health care program, damage assessments, and imprisonment. In certain circumstances, violation of these rules (such as those prohibiting abusive and fraudulent behavior) with respect to one property may subject other facilities under common control or ownership to sanctions, including exclusion from participation in the Medicare and Medicaid programs, as well as other government health care programs. In the ordinary course of its business, a property operator is regularly subjected to inquiries, investigations, and audits by the federal and state agencies that oversee these laws and regulations. Prosecutions, investigations, or whistleblower actions could have a material adverse effect on a property operator’s liquidity, financial condition, and operations, which could adversely affect the ability of the operator to meet its financial obligations to us. In addition, government investigations and enforcement actions brought against the health care industry have increased dramatically over the past several years and are expected to continue. Although the responsibility for enforcing these laws and regulations lies with a variety of federal, state and local governmental agencies, some may be enforced by private litigants through federal and state false claims acts and other laws, including some state privacy laws, that allow for private individuals to bring actions. The costs for an operator of a health care property associated with both defending such enforcement actions and the undertakings in settling these actions can be substantial and could have a material adverse effect on the ability of an operator to meet its obligations to us. Federal and State Data Privacy and Security Laws The Health Insurance Portability and Accountability Act of 1996, as amended by Health Information Technology for Economic and Clinical Health Act, and numerous other state and federal laws govern the collection, security, dissemination, use, access to and confidentiality of individually identifiable health information. Violations of these laws may result in substantial civil and/or criminal fines and penalties. United Kingdom In England, care home services are principally regulated by the Health and Social Care Act 2008 (as amended) and other regulations. This legislation subjects service providers to a number of legally binding “Fundamental Standards” and requires, amongst other things, that all persons carrying out “Regulated Activities” in England, and the managers of such persons, be registered. Providers of care home services are also subject (as 11 data controllers) to laws governing their use of personal data (including in relation to their employees, clients and recipients of their services). These laws currently take the form of the UK’s Data Protection Act 1998, enforced by the UK’s Information Commissioner’s Office, but this will be replaced in mid-2018 by the EU’s new General Data Protection Regulation (“GDPR”). The GDPR will impose a significant number of new obligations with the potential for fines of up to 4% of annual worldwide turnover or €20 million, whichever is greater. Entities incorporated in or carrying on a business in the UK as well as individuals residing in the U.K. are also subject to the UK Bribery Act 2010. The UK recently introduced a new national minimum wage with a maximum fine for non-payment of £20,000 per worker and employers who fail to pay will be banned from being a company director for up to 15 years. The UK recently voted to exit from the EU (“Brexit”). Negotiations on the exit agreement are underway but at present it is not possible to predict whether Brexit will have a material impact on our operators’ or tenants’ property or business. Canada Retirement homes and long-term care homes are subject to regulation, and long-term care homes receive funding, under provincial law. There is no federal regulation in this area. Set out below are summaries of the principal regulatory requirements in the provinces where we have a material number of facilities. Licensing and Regulation Alberta In Alberta, there are three relevant designations for seniors’ living arrangements, ordered below from the most independent to the highest level of care. • Retirement Homes (also called independent living) are designed for older adults able to live on their own, and may offer various lifestyle amenities. These residences may be rented, privately owned, or life-leased, and may be operated for profit or non-profit. Support services are not usually offered, but can be arranged by residents. Retirement homes do not generally receive government funding; residents pay for tenancy and services received. Rental subsidies may be available to qualified seniors. Independent living residences are subject to provincial tenancy and housing laws. • Supportive Living (also called assisted living) provides home-like accommodation for residents who wish or need to access care, assistance, and services. Operators provide at least one meal a day or housekeeping services. There are four levels of supportive living, addressing care needs from basic to advanced. In addition, there are two specialized designations of supportive care to address the needs of residents who require the highest level of care including for those who have cognitive impairments. Supportive living can include seniors lodges, group homes, and mental health and designated supportive living accommodations, which can be operated by private for-profit or not-for-profit, or public operators. Supportive living services are licensed and regulated under Provincial laws, and governed by the Ministry of Health. Operators receiving public funds for health and personal care services must also comply with additional provincial to legislated safeguards aimed at investigation of suspected abuse. The maximum accommodation fee in publicly- funded designated supportive living is regulated by Alberta Health. In other supportive living settings, the operator sets the cost of accommodation. Health services are publicly-funded and provided through Alberta Health Services. Private sector operators are eligible to apply for government funding under a government capital grant program that provides funding to develop long-term care and affordable supportive living spaces. legislation, and are subject • Nursing Homes (also called long-term care) are for residents who have complex, unpredictable medical needs and who require 24-hour on-site registered nurse assessment or treatment. Nursing homes are regulated by Provincial laws, and governed by the Ministry of Health. Operators are not licensed, but enter into agreements with the Ministry for the operation of nursing homes and must comply with certain accommodation standards. Homes can be operated by private for-profit or not-for-profit, or public operators. Operators that receive public funds for health and personal care services must also comply with certain health service standards and legislation aimed at protecting residents. Alberta 12 Health regulates the maximum accommodation fee in publicly-funded nursing homes. Health services in long-term care are publicly-funded, provided through Alberta Health Services. Private sector operators are eligible to apply for government funding, and the Minister may make grants to an operator in respect of its operating or capital costs. Ontario Long-term care homes (also called nursing homes), receive government funding, are licensed under provincial law aimed at resident protection, and are governed by the Ministry of Health and Long-Term Care. Retirement homes are regulated and licensed under a provincial law aimed at protecting residents. Retirement homes do not receive government funding; residents enter into tenancy agreements under provincial tenancy law, and pay for tenancy and services received. Residents may access publicly-funded external care services at the home from external suppliers. Retirement home licenses are granted by the Retirement Homes Regulatory Authority (“RHRA”), and are non-transferable. The RHRA administers the law governing retirement homes, to ensure that licensees are meeting certain standards, generally with respect to care and safety. The law requires any person to report to the RHRA when there are reasonable grounds to suspect abuse of a resident by anyone, or neglect of a resident by staff. The RHRA conducts a mandatory inspection and issues a report that is posted on the RHRA’s public website, and also must be posted in the subject home if it is the most recent report. The Registrar of the RHRA can receive complaints about a retirement home contravening a provision of the law, and if such a complaint is received, it must be reviewed promptly. The Registrar has broad powers relating to complaint investigation and action. The RHRA Registrar has the power to inspect a retirement home at any time without warning or issue a warrant to ensure compliance. Compliance inspections occur at least every three years. The Registrar has the power to make a variety of orders including the imposition of a fine or an order revoking the operator’s license. The applicable law also enumerates offenses, such as operating without a license, and provides for penalties for offenses. All of the homes in which we have an interest in Ontario are licensed as retirement homes. One of the homes also has some licensed long-term care beds. British Columbia Provincial laws regulate and license “community care facilities” (long-term care homes) in substantially the same manner as retirement homes are regulated under Ontario laws. Community care facilities are defined as premises used for the purpose of supervising vulnerable persons who require three or more prescribed services (from a list that includes regular assistance with activities of daily living; distribution of medication; management of cash resources; monitoring of food intake; structured behavior management and intervention; and psychosocial or physical rehabilitative therapy). Provincial law also recognizes and regulates “assisted living residences,” for seniors who can live independently, but require assistance with certain activities. Services available can include meals, housekeeping, monitoring and emergency support, social/recreational opportunities, and transportation. Assisted living residences do not require a license, but must be registered with the registrar of assisted living residences and must be operated in a manner that does not jeopardize the health or safety of residents. If the registrar believes the standard is not being met, the registrar may inspect the residence and may suspend or cancel a registration. Independent living residences offer housing and hospitality services for retired adults who are functionally independent and able to direct their own care. Most of the residences in which we have an interest in B.C. are assisted living residences, with one being an independent living residence. Québec Provincial laws in Québec regulate retirement homes (private seniors’ residences) as well as long-term care homes (residential and long-term care centers). All homes in which we have an interest in Québec are private seniors’ residences which are required to obtain a certificate of compliance based on prescribed operating standards. A certificate of compliance is issued for a period of four years and is renewable. The regional health and social agency may revoke or refuse to issue or renew a certificate of compliance if, among other things, the 13 operator fails to comply with the applicable law. The agency may also order corrective measures, further to an inspection, complaint or investigation. The agency is authorized to inspect a residence, at any reasonable time of day, in order to ascertain whether it complies with the law. Private seniors’ residences may belong to either or both of the following categories: (i) those offering services to independent elderly persons and (ii) those offering services to semi-independent elderly persons. The operator must, for each category, comply with the applicable criteria and standards, with some exceptions for residences with fewer than six or ten rooms or apartments. There are requirements with respect to residents’ health and safety, meal services and recreation, content of residents’ files, disclosure of information to residents, and staffing, among other things. Other Related Laws Privacy The services provided in our facilities are subject to privacy legislation in Canada, including, in certain provinces, privacy laws specifically related to personal health information. Although the obligations of custodians of personal information in the various provinces differ, they all include the obligation to protect the information. The organizations with which we have management agreements may be the custodian of personal information collected in connection with the operation of our facilities. Privacy laws in Canada are consent-based and require the implementation of a privacy program involving policies, procedures and the designation of an individual or team with primary responsibility for privacy law compliance. Mandatory breach notification to affected individuals is a requirement under some laws. Mandatory breach notification to the applicable regulator is a requirement in some provinces. Some laws require notification where personal information is processed or stored outside of Canada. One provincial law (in Quebec) provides for fines where an organization fails to perform due diligence before outsourcing activities involving personal information to a service provider outside of the province. The powers of privacy regulators and penalties for violations of privacy law vary according to the applicable law or are left to the courts. To date, monetary penalties granted have been on the low side, although that is changing with civil actions for breach of privacy and may change further as a result of class action activity. Regulators have the authority to make public the identity of a custodian that has been found to have committed a breach, so there is a reputational risk associated with privacy law violations even where no monetary damages are incurred. The notification of residents (mandatory under some privacy laws) and other activities required to manage a privacy breach can give rise to significant costs. Other Legislation Retirement homes may be subject to residential tenancy laws, such that there can be restrictions on rent increases and termination of tenancies, for instance. Other provincial and/or municipal laws applicable to fire safety, food services, zoning, occupational health and safety, public health, and the provision of community health care and funded long-term/post-acute care may also apply to retirement homes. Taxation Federal Income Tax Considerations The following summary of the taxation of the Company and the material federal tax consequences to the holders of our debt and equity securities is for general information only and is not tax advice. This summary does not address all aspects of taxation that may be relevant to certain types of holders of stock or securities (including, but not limited to, insurance companies, tax-exempt entities, financial institutions or broker-dealers, persons holding shares of common stock as part of a hedging, integrated conversion, or constructive sale transaction or a straddle, traders in securities that use a mark-to-market method of accounting for their securities, investors in pass-through entities and foreign corporations and persons who are not citizens or residents of the United States). 14 This summary does not discuss all of the aspects of U.S. federal income taxation that may be relevant to you in light of your particular investment or other circumstances. In addition, this summary does not discuss any state or local income taxation or foreign income taxation or other tax consequences. This summary is based on current U.S. federal income tax law. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of purchasing, owning and disposing of our securities as set forth in this summary. Before you purchase our securities, you should consult your own tax advisor regarding the particular U.S. federal, state, local, foreign and other tax consequences of acquiring, owning and selling our securities. General We elected to be taxed as a real estate investment trust (a “REIT”) commencing with our first taxable year. We intend to continue to operate in such a manner as to qualify as a REIT, but there is no guarantee that we will qualify or remain qualified as a REIT for subsequent years. Qualification and taxation as a REIT depends upon our ability to meet a variety of qualification tests imposed under federal income tax law with respect to income, assets, distribution level and diversity of share ownership as discussed below under “— Qualification as a REIT.” There can be no assurance that we will be owned and organized and will operate in a manner so as to qualify or remain qualified. In any year in which we qualify as a REIT, in general, we will not be subject to federal income tax on that portion of our REIT taxable income or capital gain that is distributed to stockholders. We may, however, be subject to tax at normal corporate rates on any taxable income or capital gain not distributed. If we elect to retain and pay income tax on our net long-term capital gains, stockholders are required to include their proportionate share of our undistributed long-term capital gains in income, but they will receive a refundable credit for their share of any taxes paid by us on such gain. Despite the REIT election, we may be subject to federal income and excise tax as follows: • To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates; • We may be subject to the “alternative minimum tax” (the “AMT”) on certain tax preference items to the extent that the AMT exceeds our regular tax; • If we have net income from the sale or other disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, such income will be taxed at the highest corporate rate; • Any net income from prohibited transactions (which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than dispositions of foreclosure property and dispositions of property due to an involuntary conversion) will be subject to a 100% tax; • • If we fail to satisfy either the 75% or 95% gross income tests (as discussed below), but nonetheless maintain our qualification as a REIT because certain other requirements are met, we will be subject to a 100% tax on an amount equal to (1) the gross income attributable to the greater of (i) 75% of our gross income over the amount of qualifying gross income for purposes of the 75% gross income test (discussed below) or (ii) 95% of our gross income over the amount of qualifying gross income for purposes of the 95% gross income test (discussed below) multiplied by (2) a fraction intended to reflect our profitability; If we fail to distribute during each year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain net income for such year (other than capital gain that we elect to retain and pay tax on) and (3) any undistributed taxable income from preceding periods, we will be subject to a 4% excise tax on the excess of such required distribution over amounts actually distributed; • We will be subject to a 100% tax on the amount of any rents from real property, deductions or excess interest paid to us by any of our “taxable REIT subsidiaries” that would be reduced through 15 reallocation under certain federal income tax principles in order to more clearly reflect income of the taxable REIT subsidiary. See “— Qualification as a REIT — Investments in Taxable REIT Subsidiaries;” and • We may be subject to the corporate “alternative minimum tax” on any items of tax preference, including any deductions of net operating losses. If we acquire any assets from a corporation, which is or has been a “C” corporation, in a carryover basis transaction, we could be liable for specified liabilities that are inherited from the “C” corporation. A “C” corporation is generally defined as a corporation that is required to pay full corporate level federal income tax. If we recognize gain on the disposition of the assets during the five-year period beginning on the date on which the assets were acquired by us, then, to the extent of the assets’ “built-in gain” (i.e., the excess of the fair market value of the asset over the adjusted tax basis in the asset, in each case determined as of the beginning of the five- year period), we will be subject to tax on the gain at the highest regular corporate rate applicable. The results described in this paragraph with respect to the recognition of built-in gain assume that the built-in gain assets, at the time the built-in gain assets were subject to a conversion transaction (either where a “C” corporation elected REIT status or a REIT acquired the assets from a “C” corporation), were not treated as sold to an unrelated party and gain recognized. For those properties that are subject to the built-in-gains tax, if triggered by a sale within the five-year period beginning on the date on which the properties were acquired by us, then the potential amount of built-in-gains tax will be an additional factor when considering a possible sale of the properties. See Note 18 to our consolidated financial statements for additional information regarding the built-in gains tax. Qualification as a REIT A REIT is defined as a corporation, trust or association: (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation but for the federal income tax law relating to REITs; (4) which is neither a financial institution nor an insurance company; (5) the beneficial ownership of which is held by 100 or more persons in each taxable year of the REIT except for its first taxable year; (6) not more than 50% in value of the outstanding stock of which is owned during the last half of each taxable year, excluding its first taxable year, directly or indirectly, by or for five or fewer individuals (which includes certain entities) (the “Five or Fewer Requirement”); and (7) which meets certain income and asset tests described below. Conditions (1) to (4), inclusive, must be met during the entire taxable year and condition (5) must be met during at least 335 days of a taxable year of 12 months or during a proportionate part of a taxable year of less than 12 months. For purposes of conditions (5) and (6), pension funds and certain other tax-exempt entities are treated as individuals, subject to a “look-through” exception in the case of condition (6). Based on publicly available information, we believe we have satisfied the share ownership requirements set forth in (5) and (6) above. In addition, Article VI of our by-laws provides for restrictions regarding ownership and transfer of shares. These restrictions are intended to assist us in continuing to satisfy the share ownership requirements described in (5) and (6) above. These restrictions, however, may not ensure that we will, in all cases, be able to satisfy the share ownership requirements described in (5) and (6) above. We have complied with, and will continue to comply with, regulatory rules to send annual letters to certain of our stockholders requesting information regarding the actual ownership of our stock. If, despite sending the annual letters, we do not know, or after exercising reasonable diligence would not have known, whether we failed to meet the Five or Fewer Requirement, we will be treated as having met the Five or Fewer Requirement. 16 If we fail to comply with these regulatory rules, we will be subject to a monetary penalty. If our failure to comply was due to intentional disregard of the requirement, the penalty would be increased. However, if our failure to comply were due to reasonable cause and not willful neglect, no penalty would be imposed. We may own a number of properties through wholly owned subsidiaries. A corporation will qualify as a “qualified REIT subsidiary” if 100% of its stock is owned by a REIT, and the REIT does not elect to treat the subsidiary as a taxable REIT subsidiary. A “qualified REIT subsidiary” will not be treated as a separate corporation, and all assets, liabilities and items of income, deductions and credits of a “qualified REIT subsidiary” will be treated as assets, liabilities and items (as the case may be) of the REIT. A “qualified REIT subsidiary” is not subject to federal income tax, and our ownership of the voting stock of a qualified REIT subsidiary will not violate the restrictions against ownership of securities of any one issuer which constitute more than 10% of the value or total voting power of such issuer or more than 5% of the value of our total assets, as described below under “— Asset Tests.” If we invest in a partnership, a limited liability company or a trust taxed as a partnership or as a disregarded entity, we will be deemed to own a proportionate share of the partnership’s, limited liability company’s or trust’s assets. Likewise, we will be treated as receiving our share of the income and loss of the partnership, limited liability company or trust, and the gross income will retain the same character in our hands as it has in the hands of the partnership, limited liability company or trust. These “look-through” rules apply for purposes of the income tests and assets tests described below. Income Tests. There are two separate percentage tests relating to our sources of gross income that we must satisfy each taxable year. • At least 75% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from “rents from real property,” other income from investments relating to real property or mortgages on real property or certain income from qualified temporary investments. • At least 95% of our gross income (excluding gross income from certain sales of property held primarily for sale) must be directly or indirectly derived each taxable year from any of the sources qualifying for the 75% gross income test and from dividends (including dividends from taxable REIT subsidiaries) and interest. As to transactions entered into in taxable years beginning after October 22, 2004 and on or prior to July 30, 2008, any of our income from a “clearly identified” hedging transaction that is entered into by us in the normal course of business, directly or indirectly, to manage the risk of interest rate movements, price changes or currency fluctuations with respect to borrowings or obligations incurred or to be incurred by us, or such other risks that are prescribed by the Internal Revenue Service, is excluded from the 95% gross income test. For transactions entered into after July 30, 2008, any of our income from a “clearly identified” hedging transaction that is entered into by us in the normal course of business, directly or indirectly, to manage the risk of interest rate movements, price changes or currency fluctuations with respect to borrowings or obligations incurred or to be incurred by us is excluded from the 95% and 75% gross income tests. For transactions entered into after July 30, 2008, any of our income from a “clearly identified” hedging transaction entered into by us primarily to manage risk of currency fluctuations with respect to any item of income or gain that is included in gross income in the 95% and 75% gross income tests is excluded from the 95% and 75% gross income tests. In general, a hedging transaction is “clearly identified” if (1) the transaction is identified as a hedging transaction before the end of the day on which it is entered into and (2) the items or risks being hedged are identified “substantially contemporaneously” with the hedging transaction. An identification is not substantially contemporaneous if it is made more than 35 days after entering into the hedging transaction. As to gains and items of income recognized after July 30, 2008, “passive foreign exchange gain” for any taxable year will not constitute gross income for purposes of the 95% gross income test and “real estate foreign exchange gain” for any taxable year will not constitute gross income for purposes of the 75% gross income test. Real estate foreign exchange gain is foreign currency gain (as defined in Internal Revenue Code 17 Section 988(b)(1)) which is attributable to: (i) any qualifying item of income or gain for purposes of the 75% gross income test; (ii) the acquisition or ownership of obligations secured by mortgages on real property or interests in real property; or (iii) becoming or being the obligor under obligations secured by mortgages on real property or on interests in real property. Real estate foreign exchange gain also includes Internal Revenue Code Section 987 gain attributable to a qualified business unit (a “QBU”) of a REIT if the QBU itself meets the 75% gross income test for the taxable year and the 75% asset test at the close of each quarter that the REIT has directly or indirectly held the QBU. Real estate foreign exchange gain also includes any other foreign currency gain as determined by the Secretary of the Treasury. Passive foreign exchange gain includes all real estate foreign exchange gain and foreign currency gain which is attributable to: (i) any qualifying item of income or gain for purposes of the 95% gross income test; (ii) the acquisition or ownership of obligations; (iii) becoming or being the obligor under obligations; and (iv) any other foreign currency gain as determined by the Secretary of the Treasury. Generally, other than income from “clearly identified” hedging transactions entered into by us in the normal course of business, any foreign currency gain derived by us from dealing, or engaging in substantial and regular trading, in securities will constitute gross income which does not qualify under the 95% or 75% gross income tests. Rents received by us will qualify as “rents from real property” for purposes of satisfying the gross income tests for a REIT only if several conditions are met: • The amount of rent must not be based in whole or in part on the income or profits of any person, although rents generally will not be excluded merely because they are based on a fixed percentage or percentages of receipts or sales. • Rents received from a tenant will not qualify as rents from real property if the REIT, or an owner of 10% or more of the REIT, also directly or constructively owns 10% or more of the tenant, unless the tenant is our taxable REIT subsidiary and certain other requirements are met with respect to the real property being rented. • • • If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as “rents from real property.” For rents to qualify as rents from real property, we generally must not furnish or render services to tenants, other than through a taxable REIT subsidiary or an “independent contractor” from whom we derive no income, except that we may directly provide services that are “usually or customarily rendered” in the geographic area in which the property is located in connection with the rental of real property for occupancy only, or are not otherwise considered “rendered to the occupant for his convenience.” For taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary if the property is operated on behalf of such subsidiary by a person who qualifies as an “independent contractor” and who is, or is related to a person who is, actively engaged in the trade or business of operating health care facilities for any person unrelated to us or our taxable REIT subsidiary, an “eligible independent contractor.” Generally, the rent that the REIT receives from the taxable REIT subsidiary will be treated as “rents from real property.” A “qualified health care property” includes any real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility that extends medical or nursing or ancillary services to patients and is operated by a provider of such services that is eligible for participation in the Medicare program with respect to such facility. A REIT is permitted to render a de minimis amount of impermissible services to tenants and still treat amounts received with respect to that property as rent from real property. The amount received or accrued by the REIT during the taxable year for the impermissible services with respect to a property may not exceed 1% of all amounts received or accrued by the REIT directly or indirectly from the property. The amount received for any 18 service or management operation for this purpose shall be deemed to be not less than 150% of the direct cost of the REIT in furnishing or rendering the service or providing the management or operation. Furthermore, impermissible services may be furnished to tenants by a taxable REIT subsidiary subject to certain conditions, and we may still treat rents received with respect to the property as rent from real property. The term “interest” generally does not include any amount if the determination of the amount depends in whole or in part on the income or profits of any person, although an amount generally will not be excluded from the term “interest” solely by reason of being based on a fixed percentage of receipts or sales. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for such year if we are eligible for relief. These relief provisions generally will be available if (1) following our identification of the failure, we file a schedule for such taxable year describing each item of our gross income, and (2) the failure to meet such tests was due to reasonable cause and not due to willful neglect. It is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions. If these relief provisions apply, a 100% tax is imposed on an amount equal to (a) the gross income attributable to (1) 75% of our gross income over the amount of qualifying gross income for purposes of the 75% income test and (2) 95% of our gross income over the amount of qualifying gross income for purposes of the 95% income test, multiplied by (b) a fraction intended to reflect our profitability. The Secretary of the Treasury is given broad authority to determine whether particular items of income or gain qualify or not under the 75% and 95% gross income tests, or are to be excluded from the measure of gross income for such purposes. Asset Tests. Within 30 days after the close of each quarter of our taxable year, we must also satisfy several tests relating to the nature and diversification of our assets determined in accordance with generally accepted accounting principles. At least 75% of the value of our total assets must be represented by real estate assets, cash, cash items (including receivables arising in the ordinary course of our operation), government securities and qualified temporary investments. Although the remaining 25% of our assets generally may be invested without restriction, we are prohibited from owning securities representing more than 10% of either the vote (the “10% vote test”) or value (the “10% value test”) of the outstanding securities of any issuer other than a qualified REIT subsidiary, another REIT or a taxable REIT subsidiary. Further, no more than 25% (20% for tax years beginning after 2017) of the total assets may be represented by securities of one or more taxable REIT subsidiaries (the “25% asset test”) and no more than 5% of the value of our total assets may be represented by securities of any non-governmental issuer other than a qualified REIT subsidiary (the “5% asset test”), another REIT or a taxable REIT subsidiary. Each of the 10% vote test, the 10% value test and the 25% and 5% asset tests must be satisfied at the end of each quarter. There are special rules which provide relief if the value related tests are not satisfied due to changes in the value of the assets of a REIT. Certain items are excluded from the 10% value test, including: (1) straight debt securities (as defined in Internal Revenue Code Section 1361(c)(5)) of an issuer (including straight debt that provides certain contingent payments); (2) any loan to an individual or an estate; (3) any rental agreement described in Section 467 of the Internal Revenue Code, other than with a “related person”; (4) any obligation to pay rents from real property; (5) certain securities issued by a state or any subdivision thereof, the District of Columbia, a foreign government, or any political subdivision thereof, or the Commonwealth of Puerto Rico; (6) any security issued by a REIT; and (7) any other arrangement that, as determined by the Secretary of the Treasury, is excepted from the definition of security (“excluded securities”). Special rules apply to straight debt securities issued by corporations and entities taxable as partnerships for federal income tax purposes. If a REIT, or its taxable REIT subsidiary, holds (1) straight debt securities of a corporate or partnership issuer and (2) securities of such issuer that are not excluded securities and have an aggregate value greater than 1% of such issuer’s outstanding securities, the straight debt securities will be included in the 10% value test. A REIT’s interest as a partner in a partnership is not treated as a security for purposes of applying the 10% value test to securities issued by the partnership. Further, any debt instrument issued by a partnership will not be a security for purposes of applying the 10% value test (1) to the extent of the REIT’s interest as a partner in the partnership and (2) if at least 75% of the partnership’s gross income (excluding gross income from prohibited transactions) would qualify for the 75% gross income test. For purposes of the 10% value test, a REIT’s interest in a partnership’s assets is determined by the REIT’s proportionate interest in any securities issued by the partnership (other than the excluded securities described in the preceding paragraph). 19 For taxable years beginning after July 30, 2008, if the REIT or its QBU uses a foreign currency as its functional currency, the term “cash” includes such foreign currency, but only to the extent such foreign currency is (i) held for use in the normal course of the activities of the REIT or QBU which give rise to items of income or gain that are included in the 95% and 75% gross income tests or are directly related to acquiring or holding assets qualifying under the 75% asset test, and (ii) not held in connection with dealing or engaging in substantial and regular trading in securities. With respect to corrections of failures as to violations of the 10% vote test, the 10% value test or the 5% asset test, a REIT may avoid disqualification as a REIT by disposing of sufficient assets to cure a violation that does not exceed the lesser of 1% of the REIT’s assets at the end of the relevant quarter or $10,000,000, provided that the disposition occurs within six months following the last day of the quarter in which the REIT first identified the assets. For violations of any of the REIT asset tests due to reasonable cause and not willful neglect that exceed the thresholds described in the preceding sentence, a REIT can avoid disqualification as a REIT after the close of a taxable quarter by taking certain steps, including disposition of sufficient assets within the six month period described above to meet the applicable asset test, paying a tax equal to the greater of $50,000 or the highest corporate tax rate multiplied by the net income generated by the non-qualifying assets during the period of time that the assets were held as non-qualifying assets and filing a schedule with the Internal Revenue Service that describes the non-qualifying assets. Investments in Taxable REIT Subsidiaries. REITs may own more than 10% of the voting power and value of securities in taxable REIT subsidiaries. Unlike a qualified REIT subsidiary, other disregarded entity or partnership, the income and assets of a taxable REIT subsidiary are not attributable to the REIT for purposes of satisfying the income and asset ownership requirements applicable to REIT qualification. We and any taxable corporate entity in which we own an interest are allowed to jointly elect to treat such entity as a “taxable REIT subsidiary.” Certain of our subsidiaries have elected to be treated as a taxable REIT subsidiary. Taxable REIT subsidiaries are subject to full corporate level federal taxation on their earnings but are permitted to engage in certain types of activities that cannot be performed directly by REITs without jeopardizing their REIT status. Our taxable REIT subsidiaries will attempt to minimize the amount of these taxes, but there can be no assurance whether or the extent to which measures taken to minimize taxes will be successful. To the extent our taxable REIT subsidiaries are required to pay federal, state or local taxes, the cash available for distribution as dividends to us from our taxable REIT subsidiaries will be reduced. The amount of interest on related-party debt that a taxable REIT subsidiary may deduct is limited. Further, a 100% tax applies to any interest payments by a taxable REIT subsidiary to its affiliated REIT to the extent the interest rate is not commercially reasonable. A taxable REIT subsidiary is permitted to deduct interest payments to unrelated parties without any of these restrictions. The Internal Revenue Service may reallocate costs between a REIT and its taxable REIT subsidiary where there is a lack of arm’s-length dealing between the parties. Any deductible expenses allocated away from a taxable REIT subsidiary would increase its tax liability. Further, any amount by which a REIT understates its deductions and overstates those of its taxable REIT subsidiary may, subject to certain exceptions, be subject to a 100% tax. Additional taxable REIT subsidiary elections may be made in the future for additional entities in which we obtain an interest. Annual Distribution Requirements. In order to avoid being taxed as a regular corporation, we are required to make distributions (other than capital gain distributions) to our stockholders which qualify for the dividends paid deduction in an amount at least equal to (1) the sum of (i) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and our net capital gain) and (ii) 90% of the after-tax net income, if any, from foreclosure property, minus (2) a portion of certain items of non-cash income. These distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for that year and if paid on or before the first regular distribution payment after such declaration. Prior to recently enacted legislation, with respect to all REITs the amount distributed could not be preferential. This means that every stockholder of the class of stock to which a distribution is made must be treated the same as every other stockholder of that class, and no class of stock may be treated otherwise than in 20 accordance with its dividend rights as a class (the “preferential dividend rule”). Beginning in tax years after 2014, the preferential dividend rule no longer applies to publicly offered REITs, however, the rule is still applicable to other entities taxed as REITs, which would include several of our subsidiaries. To the extent that we do not distribute all of our net capital gain or distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax on the undistributed amount at regular corporate tax rates. As discussed above, we may be subject to an excise tax if we fail to meet certain other distribution requirements. We believe we have satisfied the annual distribution requirements for the year of our initial REIT election and each year thereafter through the year ended December 31, 2016. Although we intend to make timely distributions sufficient to satisfy these annual distribution requirements for subsequent years, economic, market, legal, tax or other factors could limit our ability to meet those requirements. See “Item 1A — Risk Factors.” It is also possible that, from time to time, we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, or to distribute such greater amount as may be necessary to avoid income and excise taxation, due to, among other things, (1) timing differences between (i) the actual receipt of income and actual payment of deductible expenses and (ii) the inclusion of income and deduction of expenses in arriving at our taxable income, or (2) the payment of severance benefits that may not be deductible to us. In the event that timing differences occur, we may find it necessary to arrange for borrowings or, if possible, pay dividends in the form of taxable stock dividends in order to meet the distribution requirement. Under certain circumstances, in the event of a deficiency determined by the Internal Revenue Service, we may be able to rectify a resulting failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in our deduction for distributions paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends; however, we will be required to pay applicable penalties and interest based upon the amount of any deduction taken for deficiency dividend distributions. Failure to Qualify as a REIT If we fail to qualify for taxation as a REIT in any taxable year, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to stockholders in any year in which we fail to qualify as a REIT will not be deductible nor will any particular amount of distributions be required to be made in any year. All distributions to stockholders will be taxable as ordinary income to the extent of current and accumulated earnings and profits allocable to these distributions to certain limitations, will be eligible for the dividends received deduction for corporate and, subject stockholders. Unless entitled to relief under specific statutory provisions, we also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances we would be entitled to statutory relief. Failure to qualify for even one year could result in our need to incur indebtedness or liquidate investments in order to pay potentially significant resulting tax liabilities. In addition to the relief described above under “— Income Tests” and “— Asset Tests,” relief is available in the event that we violate a provision of the Internal Revenue Code that would result in our failure to qualify as a REIT if: (1) the violation is due to reasonable cause and not due to willful neglect; (2) we pay a penalty of $50,000 for each failure to satisfy the provision; and (3) the violation does not include a violation described under “— Income Tests” or “— Asset Tests” above. It is not now possible to determine the circumstances under which we may be entitled to the benefit of these relief provisions. Federal Income Taxation of Holders of Our Stock Treatment of Taxable U.S. Stockholders. The following summary applies to you only if you are a “U.S. stockholder.” A “U.S. stockholder” is a holder of shares of stock who, for United States federal income tax purposes, is: • • a citizen or resident of the United States; a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state; 21 • • an estate, the income of which is subject to United States federal income taxation regardless of its source; or a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions. So long as we qualify for taxation as a REIT, distributions on shares of our stock made out of the current or accumulated earnings and profits allocable to these distributions (and not designated as capital gain dividends) will be includable as ordinary income for federal income tax purposes. None of these distributions will be eligible for the dividends received deduction for U.S. corporate stockholders. Generally, the current maximum marginal rate of tax payable by individuals on dividends received from corporations that are subject to a corporate level of tax is 20%. Except in limited circumstances, this tax rate will not apply to dividends paid to you by us on our shares, because generally we are not subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our stockholders. The reduced maximum federal income tax rate will apply to that portion, if any, of dividends received by you with respect to our shares that are attributable to: (1) dividends received by us from non-REIT corporations or other taxable REIT subsidiaries; (2) income from the prior year with respect to which we were required to pay federal corporate income tax during the prior year (if, for example, we did not distribute 100% of our REIT taxable income for the prior year); or (3) the amount of any earnings and profits that were distributed by us and accumulated in a non-REIT year. Distributions that are designated as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year), without regard to the period for which you held our stock. However, if you are a corporation, you may be required to treat a portion of some capital gain dividends as ordinary income. If we elect to retain and pay income tax on any net long-term capital gain, you would include in income, as long-term capital gain, your proportionate share of this net long-term capital gain. You would also receive a refundable tax credit for your proportionate share of the tax paid by us on such retained capital gains, and you would have an increase in the basis of your shares of our stock in an amount equal to your includable capital gains less your share of the tax deemed paid. You may not include in your federal income tax return any of our net operating losses or capital losses. Federal income tax rules may also require that certain minimum tax adjustments and preferences be apportioned to you. In addition, any distribution declared by us in October, November or December of any year on a specified date in any such month shall be treated as both paid by us and received by you on December 31 of that year, provided that the distribution is actually paid by us no later than January 31 of the following year. We will be treated as having sufficient earnings and profits to treat as a dividend any distribution up to the amount required to be distributed in order to avoid imposition of the 4% excise tax discussed under “— General” and “— Qualification as a REIT — Annual Distribution Requirements” above. As a result, you may be required to treat as taxable dividends certain distributions that would otherwise result in a tax-free return of capital. Moreover, any “deficiency dividend” will be treated as a dividend (an ordinary dividend or a capital gain dividend, as the case may be), regardless of our earnings and profits. Any other distributions in excess of current or accumulated earnings and profits will not be taxable to you to the extent these distributions do not exceed the adjusted tax basis of your shares of our stock. You will be required to reduce the tax basis of your shares of our stock by the amount of these distributions until the basis has been reduced to zero, after which these distributions will be taxable as capital gain, if the shares of our stock are held as capital assets. The tax basis as so reduced will be used in computing the capital gain or loss, if any, realized upon sale of the shares of our stock. Any loss upon a sale or exchange of shares of our stock which were held for six months or less (after application of certain holding period rules) will generally be treated as a long-term capital loss to the extent you previously received capital gain distributions with respect to these shares of our stock. Upon the sale or exchange of any shares of our stock to or with a person other than us or a sale or exchange of all shares of our stock (whether actually or constructively owned) with us, you will generally recognize capital 22 gain or loss equal to the difference between the amount realized on the sale or exchange and your adjusted tax basis in these shares of our stock. This gain will be capital gain if you held these shares of our stock as a capital asset. If we redeem any of your shares in us, the treatment can only be determined on the basis of particular facts at the time of redemption. In general, you will recognize gain or loss (as opposed to dividend income) equal to the difference between the amount received by you in the redemption and your adjusted tax basis in your shares redeemed if such redemption: (1) results in a “complete termination” of your interest in all classes of our equity securities; (2) is a “substantially disproportionate redemption”; or (3) is “not essentially equivalent to a dividend” with respect to you. In applying these tests, you must take into account your ownership of all classes of our equity securities (e.g., common stock, preferred stock, depositary shares and warrants). You also must take into account any equity securities that are considered to be constructively owned by you. If, as a result of a redemption by us of your shares, you no longer own (either actually or constructively) any of our equity securities or only own (actually and constructively) an insubstantial percentage of our equity securities, then it is probable that the redemption of your shares would be considered “not essentially equivalent to a dividend” and, thus, would result in gain or loss to you. However, whether a distribution is “not essentially equivalent to a dividend” depends on all of the facts and circumstances, and if you rely on any of these tests at the time of redemption, you should consult your tax advisor to determine their application to the particular situation. Generally, if the redemption does not meet the tests described above, then the proceeds received by you from the redemption of your shares will be treated as a distribution taxable as a dividend to the extent of the allocable portion of current or accumulated earnings and profits. If the redemption is taxed as a dividend, your adjusted tax basis in the redeemed shares will be transferred to any other shareholdings in us that you own. If you own no other shareholdings in us, under certain circumstances, such basis may be transferred to a related person, or it may be lost entirely. Gain from the sale or exchange of our shares held for more than one year is generally taxed at a maximum long-term capital gain rate of 20% in the case of stockholders who are individuals and 35% in the case of stockholders that are corporations. Pursuant to Internal Revenue Service guidance, we may classify portions of our capital gain dividends as gains eligible for the long-term capital gains rate or as gain taxable to individual stockholders at a maximum rate of 25%. Capital losses recognized by a stockholder upon the disposition of our shares held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). An additional tax of 3.8% generally will be imposed on the “net investment income” of U.S. stockholders who meet certain requirements and are individuals, estates or certain trusts. Among other items, “net investment income” generally includes gross income from dividends and net gain attributable to the disposition of certain property, such as shares of our common stock or warrants. In the case of individuals, this tax will only apply to the extent such individual’s modified adjusted gross income exceeds $200,000 ($250,000 for married couples filing a joint return and surviving spouses, and $125,000 for married individuals filing a separate return). U.S. stockholders should consult their tax advisors regarding the possible applicability of this additional tax in their particular circumstances. Treatment of Tax-Exempt U.S. Stockholders. Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts (“Exempt Organizations”), generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (“UBTI”). The Internal Revenue Service has issued a published revenue ruling that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI, provided that the shares of the REIT are not otherwise used in an unrelated trade or business of the exempt employee pension trust. Based on this ruling, amounts distributed by us to Exempt Organizations generally should not constitute UBTI. However, if an Exempt Organization finances its acquisition of the shares of our stock with debt, a portion of its income from us will constitute UBTI pursuant to the “debt financed property” rules. Likewise, a portion of the Exempt Organization’s income from us would constitute UBTI if we held a residual interest in a real estate mortgage investment conduit. 23 In addition, in certain circumstances, a pension trust that owns more than 10% of our stock is required to treat a percentage of our dividends as UBTI. This rule applies to a pension trust holding more than 10% of our stock only if: (1) the percentage of our income that is UBTI (determined as if we were a pension trust) is at least 5%; (2) we qualify as a REIT by reason of the modification of the Five or Fewer Requirement that allows beneficiaries of the pension trust to be treated as holding shares in proportion to their actuarial interests in the pension trust; and (3) either (i) one pension trust owns more than 25% of the value of our stock, or (ii) a group of pension trusts individually holding more than 10% of the value of our stock collectively own more than 50% of the value of our stock. Backup Withholding and Information Reporting. Under certain circumstances, you may be subject to backup withholding at applicable rates on payments made with respect to, or cash proceeds of a sale or exchange of, shares of our stock. Backup withholding will apply only if you: (1) fail to provide a correct taxpayer identification number, which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer identification number; (3) are notified by the Internal Revenue Service that you have failed to properly report payments of interest or dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct taxpayer identification number and that the Internal Revenue Service has not notified you that you are subject to backup withholding. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. You should consult with a tax advisor regarding qualification for exemption from backup withholding, and the procedure for obtaining an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a stockholder will be allowed as a credit against such stockholder’s United States federal income tax liability and may entitle such stockholder to a refund, provided that the required information is provided to the Internal Revenue Service. In addition, withholding a portion of capital gain distributions made to stockholders may be required for stockholders who fail to certify their non-foreign status. Taxation of Foreign Stockholders. The following summary applies to you only if you are a foreign person. The federal taxation of foreign persons is a highly complex matter that may be affected by many considerations. Except as discussed below, distributions to you of cash generated by our real estate operations in the form of ordinary dividends, but not by the sale or exchange of our capital assets, generally will be subject to U.S. withholding tax at a rate of 30%, unless an applicable tax treaty reduces that tax and you file with us the required form evidencing the lower rate. In general, you will be subject to United States federal income tax on a graduated rate basis rather than withholding with respect to your investment in our stock if such investment is “effectively connected” with your conduct of a trade or business in the United States. A corporate foreign stockholder that receives income that is, or is treated as, effectively connected with a United States trade or business may also be subject to the branch profits tax, which is payable in addition to regular United States corporate income tax. The following discussion will apply to foreign stockholders whose investment in us is not so effectively connected. We expect to withhold United States income tax, as described below, on the gross amount of any distributions paid to you unless (1) you file an Internal Revenue Service Form W-8ECI with us claiming that the distribution is “effectively connected” or (2) certain other exceptions apply. Distributions by us that are attributable to gain from the sale or exchange of a United States real property interest will be taxed to you under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) as if these distributions were gains “effectively connected” with a United States trade or business. Accordingly, you will be taxed at the normal capital gain rates applicable to a U.S. stockholder on these amounts, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Distributions subject to FIRPTA may also be subject to a branch profits tax in the hands of a corporate foreign stockholder that is not entitled to treaty exemption. We will be required to withhold from distributions subject to FIRPTA, and remit to the Internal Revenue Service, 35% of designated capital gain dividends, or, if greater, 35% of the amount of any distributions that could be designated as capital gain dividends. In addition, if we designate prior distributions as capital gain 24 dividends, subsequent distributions, up to the amount of the prior distributions not withheld against, will be treated as capital gain dividends for purposes of withholding. Any capital gain dividend with respect to any class of stock that is “regularly traded” on an established securities market will be treated as an ordinary dividend if the foreign stockholder did not own more than 10% of such class of stock at any time during the taxable year. Foreign stockholders generally will not be required to report distributions received from us on U.S. federal income tax returns and all distributions treated as dividends for U.S. federal income tax purposes (including any such capital gain dividends) will be subject to a 30% U.S. withholding tax (unless reduced under an applicable income tax treaty) as discussed above. In addition, the branch profits tax will not apply to such distributions. Unless our shares constitute a “United States real property interest” within the meaning of FIRPTA or are effectively connected with a U.S. trade or business, a sale of our shares by you generally will not be subject to United States taxation. Though, under the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”), enacted on December 18, 2015, even if our shares were to constitute a “United States real property interest,” non-U.S. stockholders that are “qualified foreign pension funds” (or are owned by a qualified foreign pension) meeting certain requirements may be exempt from FIRPTA withholding on the sale or disposition of our shares. Our shares will not constitute a United States real property interest if we qualify as a “domestically controlled REIT.” We believe that we, and expect to continue to, qualify as a domestically controlled REIT. A domestically controlled REIT is a REIT in which at all times during a specified testing period less than 50% in value of its shares is held directly or indirectly by foreign stockholders. Generally, under the PATH Act, we are permitted to assume that holders of less than 5% of our shares at all times during a specified testing period are U.S. persons. However, if you are a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions apply, you will be subject to a 30% tax on such capital gains. In any event, a purchaser of our shares from you will not be required under FIRPTA to withhold on the purchase price if the purchased shares are “regularly traded” on an established securities market or if we are a domestically controlled REIT. Otherwise, under FIRPTA, the purchaser may be required to withhold 10% (increased to 15% under the PATH Act for distributions occurring after February 16, 2016) of the purchase price and remit such amount to the Internal Revenue Service. Backup withholding tax and information reporting will generally not apply to distributions paid to you outside the United States that are treated as: (1) dividends to which the 30% or lower treaty rate withholding tax discussed above applies; (2) capital gains dividends; or (3) distributions attributable to gain from the sale or exchange by us of U.S. real property interests. Payment of the proceeds of a sale of stock within the United States or conducted through certain U.S. related financial intermediaries is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that he or she is not a U.S. person (and the payor does not have actual knowledge that the beneficial owner is a U.S. person) or otherwise established an exemption. You may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service. Withholding tax at a rate of 30% will be imposed on certain payments to you or certain foreign financial institutions (including investment funds) and other non-US persons receiving payments on your behalf, including distributions in respect of shares of our stock and gross proceeds from the sale of shares of our stock, if you or such institutions fail to comply with certain due diligence, disclosure and reporting rules, as set forth in recently issued Treasury regulations. Accordingly, the entity through which shares of our stock are held will affect the determination of whether such withholding is required. Withholding currently applies to payments of dividends made after June 30, 2014, and will apply to payments of gross proceeds from a sale of shares of our stock made after December 31, 2018. Stockholders that are otherwise eligible for an exemption from, or reduction of, U.S. withholding taxes with respect to such dividends and proceeds will be required to seek a refund from the Internal Revenue Service to obtain the benefit of such exemption or reduction. Additional requirements and conditions may be imposed pursuant to an intergovernmental agreement, if and when entered into, between the United States and such institution’s home jurisdiction. We will not pay any additional amounts to any stockholders in respect of any amounts withheld. You are encouraged to consult with your tax advisor regarding U.S. withholding taxes and the application of the recently issued Treasury regulations in light of your particular circumstances. 25 U.S. Federal Income Taxation of Holders of Depositary Shares Owners of our depositary shares will be treated as if you were owners of the series of preferred stock represented by the depositary shares. Thus, you will be required to take into account the income and deductions to which you would be entitled if you were a holder of the underlying series of preferred stock. Conversion or Exchange of Shares for Preferred Stock. No gain or loss will be recognized upon the withdrawal of preferred stock in exchange for depositary shares and the tax basis of each share of preferred stock will, upon exchange, be the same as the aggregate tax basis of the depositary shares exchanged. If you held your depositary shares as a capital asset at the time of the exchange for shares of preferred stock, the holding period for your shares of preferred stock will include the period during which you owned the depositary shares. U.S. Federal Income and Estate Taxation of Holders of Our Debt Securities is a non-U.S. holder, as defined below, The following is a general summary of the United States federal income tax consequences and, in the case that you are a holder that the United States federal estate tax consequences, of purchasing, owning and disposing of debt securities periodically offered under one or more indentures (the “notes”). This summary assumes that you hold the notes as capital assets. This summary applies to you only if you are the initial holder of the notes and you acquire the notes for a price equal to the issue price of the notes. The issue price of the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. In addition, this summary does not consider any foreign, state, local or other tax laws that may be applicable to us or a purchaser of the notes. U.S. Holders The following summary applies to you only if you are a U.S. holder, as defined below. Definition of a U.S. Holder. A “U.S. holder” is a beneficial owner of a note or notes that is for United States federal income tax purposes: • • • • a citizen or resident of the United States; a corporation, partnership or other entity classified as a corporation or partnership for these purposes, created or organized in or under the laws of the United States or of any political subdivision of the United States, including any state; an estate, the income of which is subject to United States federal income taxation regardless of its source; or a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons, within the meaning of the Internal Revenue Code, has the authority to control all of the trust’s substantial decisions. Payments of Interest. Stated interest on the notes generally will be taxed as ordinary interest income from domestic sources at the time it is paid or accrues in accordance with your method of accounting for tax purposes. Sale, Exchange or Other Disposition of Notes. The adjusted tax basis in your note acquired at a premium will generally be your cost. You generally will recognize taxable gain or loss when you sell or otherwise dispose of your notes equal to the difference, if any, between: • • the amount realized on the sale or other disposition, less any amount attributable to any accrued interest, which will be taxable in the manner described under “— Payments of Interest” above; and your adjusted tax basis in the notes. Your gain or loss generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or loss if at the time of the sale or other disposition you have held the notes for more than one year. Subject to limited exceptions, your capital losses cannot be used to offset your ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). 26 Backup Withholding and Information Reporting. In general, “backup withholding” may apply to any payments made to you of principal and interest on your note, and to payment of the proceeds of a sale or other disposition of your note before maturity, if you are a non-corporate U.S. holder and: (1) fail to provide a correct taxpayer identification number, which if you are an individual, is ordinarily your social security number; (2) furnish an incorrect taxpayer identification number; (3) are notified by the Internal Revenue Service that you have failed to properly report payments of interest or dividends; or (4) fail to certify, under penalties of perjury, that you have furnished a correct taxpayer identification number and that the Internal Revenue Service has not notified you that you are subject to backup withholding. The amount of any reportable payments, including interest, made to you (unless you are an exempt recipient) and the amount of tax withheld, if any, with respect to such payments will be reported to you and to the Internal Revenue Service for each calendar year. You should consult your tax advisor regarding your qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. The backup withholding tax is not an additional tax and will be credited against your U.S. federal income tax liability, provided that correct information is provided to the Internal Revenue Service. Non-U.S. Holders The following summary applies to you if you are a beneficial owner of a note and are not a U.S. holder, as defined above (a “non-U.S. holder”). Special rules may apply to certain non-U.S. holders such as “controlled foreign corporations,” “passive foreign investment companies” and “foreign personal holding companies.” Such entities are encouraged to consult their tax advisors to determine the United States federal, state, local and other tax consequences that may be relevant to them. U.S. Federal Withholding Tax. Subject to the discussion below, U.S. federal withholding tax will not apply to payments by us or our paying agent, in its capacity as such, of principal and interest on your notes under the “portfolio interest” exception of the Internal Revenue Code, provided that: • • • • you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote; you are not (1) a controlled foreign corporation for U.S. federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership, as provided in the Internal Revenue Code, or (2) a bank receiving interest described in Section 881(c)(3)(A) of the Internal Revenue Code; such interest is not effectively connected with your conduct of a U.S. trade or business; and you provide a signed written statement, under penalties of perjury, which can reliably be related to you, certifying that you are not a U.S. person within the meaning of the Internal Revenue Code and providing your name and address to: • • us or our paying agent; or institution that holds customers’ a securities clearing organization, bank or other financial securities in the ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from you your signed, written statement and provides us or our paying agent with a copy of such statement. Treasury regulations provide that: • • • if you are a foreign partnership, the certification requirement will generally apply to your partners, and you will be required to provide certain information; if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial owners depending on whether you are a “foreign complex trust,” “foreign simple trust,” or “foreign grantor trust” as defined in the Treasury regulations; and look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts. 27 If you are a foreign partnership or a foreign trust, you should consult your own tax advisor regarding your status under these Treasury regulations and the certification requirements applicable to you. If you cannot satisfy the portfolio interest requirements described above, payments of interest will be subject to the 30% United States withholding tax, unless you provide us with a properly executed (1) Internal Revenue Service Form W-8BEN claiming an exemption from or reduction in withholding under the benefit of an applicable treaty or (2) Internal Revenue Service Form W-8ECI stating that interest paid on the note is not subject to withholding tax because it is effectively connected with your conduct of a trade or business in the United States. Alternative documentation may be applicable in certain circumstances. If you are engaged in a trade or business in the United States and interest on a note is effectively connected with the conduct of that trade or business, you will be required to pay United States federal income tax on that interest on a net income basis (although you will be exempt from the 30% withholding tax provided the certification requirement described above is met) in the same manner as if you were a U.S. person, except as otherwise provided by an applicable tax treaty. If you are a foreign corporation, you may be required to pay a branch profits tax on the earnings and profits that are effectively connected to the conduct of your trade or business in the United States. Withholding tax at a rate of 30% will be imposed on payments of interest (including original issue discount) and gross proceeds of sale in respect of debt instruments to you or certain foreign financial institutions (including investment funds) and other non-US persons receiving payments on your behalf, if you or such institutions fail to comply with certain due diligence, disclosure and reporting rules, as set forth in recently issued Treasury regulations. However, the Treasury regulations generally exempt from such withholding requirement obligations, such as debt instruments, issued before July 1, 2014, provided that any material modification of such an obligation made after such date will result in such obligation being considered newly issued as of the effective date of such modification. These withholding rules are generally effective with respect to payments of interest made after June 30, 2014, and with respect to proceeds of sales received after December 31, 2018. We will not pay any additional amounts to any holders or our debt instruments in respect of any amounts withheld. You are encouraged to consult with your tax advisor regarding U.S. withholding taxes and the application of the recently issued Treasury regulations in light of your particular circumstances. Sale, Exchange or other Disposition of Notes. You generally will not have to pay U.S. federal income tax on any gain or income realized from the sale, redemption, retirement at maturity or other disposition of your notes, unless: • • • in the case of gain, you are an individual who is present in the United States for 183 days or more during the taxable year of the sale or other disposition of your notes, and specific other conditions are met; you are subject to tax provisions applicable to certain United States expatriates; or the gain is effectively connected with your conduct of a U.S. trade or business. If you are engaged in a trade or business in the United States, and gain with respect to your notes is effectively connected with the conduct of that trade or business, you generally will be subject to U.S. income tax on a net basis on the gain. In addition, if you are a foreign corporation, you may be subject to a branch profits tax on your effectively connected earnings and profits for the taxable year, as adjusted for certain items. U.S. Federal Estate Tax. If you are an individual and are not a U.S. citizen or a resident of the United States, as specially defined for U.S. federal estate tax purposes, at the time of your death, your notes will generally not be subject to the U.S. federal estate tax, unless, at the time of your death (1) you owned actually or constructively 10% or more of the total combined voting power of all our classes of stock entitled to vote, or (2) interest on the notes is effectively connected with your conduct of a U.S. trade or business. Backup Withholding and Information Reporting. Backup withholding will not apply to payments of principal or interest made by us or our paying agent, in its capacity as such, to you if you have provided the required certification that you are a non-U.S. holder as described in “— U.S. Federal Withholding Tax” above, and provided that neither we nor our paying agent have actual knowledge that you are a U.S. holder, as described in “— U.S. Holders” above. We or our paying agent may, however, report payments of interest on the notes. 28 The gross proceeds from the disposition of your notes may be subject to information reporting and backup withholding tax. If you sell your notes outside the United States through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, then the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your notes through a non-U.S. office of a broker that: • • • • is a U.S. person, as defined in the Internal Revenue Code; derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; is a “controlled foreign corporation” for U.S. federal income tax purposes; or is a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons who in the aggregate hold more than 50% of the income or capital interests in the partnership, or the foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence in its files that you are a non-U.S. person and certain other conditions are met or you otherwise establish an exemption. If you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the payment is subject to both U.S. backup withholding and information reporting unless you provide a Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish an exemption. You should consult your own tax advisor regarding application of backup withholding in your particular circumstance and the availability of and procedure for obtaining an exemption from backup withholding. Any amounts withheld under the backup withholding rules from a payment to you will be allowed as a refund or credit against your U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service. U.S. Federal Income and Estate Taxation of Holders of Our Warrants Exercise of Warrants. You will not generally recognize gain or loss upon the exercise of a warrant. Your basis in the debt securities, preferred stock, depositary shares or common stock, as the case may be, received upon the exercise of the warrant will be equal to the sum of your adjusted tax basis in the warrant and the exercise price paid. Your holding period in the debt securities, preferred stock, depositary shares or common stock, as the case may be, received upon the exercise of the warrant will not include the period during which the warrant was held by you. Expiration of Warrants. Upon the expiration of a warrant, you will recognize a capital loss in an amount equal to your adjusted tax basis in the warrant. Sale or Exchange of Warrants. Upon the sale or exchange of a warrant to a person other than us, you will recognize gain or loss in an amount equal to the difference between the amount realized on the sale or exchange and your adjusted tax basis in the warrant. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the warrant was held for more than one year. Upon the sale of the warrant to us, the Internal Revenue Service may argue that you should recognize ordinary income on the sale. You are advised to consult your own tax advisors as to the consequences of a sale of a warrant to us. Potential Legislation or Other Actions Affecting Tax Consequences Current and prospective securities holders should recognize that the present federal income tax treatment of an investment in us may be modified by legislative, judicial or administrative action at any time and that any such action may affect investments and commitments previously made. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the Treasury Department, resulting in revisions of regulations and revised interpretations of established concepts as well as statutory changes. Revisions in federal tax laws and interpretations of these laws could adversely affect the tax consequences of an investment in us. 29 State, Local and Foreign Taxes We, and holders of our debt and equity securities, may be subject to state, local or foreign taxation in various jurisdictions, including those in which we or they transact business, own property or reside. It should be noted that we own properties located in a number of state, local and foreign jurisdictions, and may be required to file tax returns in some or all of those jurisdictions. The state, local or foreign tax treatment of us and holders of our debt and equity securities may not conform to the U.S. federal income tax consequences discussed above. Consequently, you are urged to consult your advisor regarding the application and effect of state, local and foreign tax laws with respect to any investment in our securities. Changes in applicable tax regulations could negatively affect our financial results The Company is subject to taxation in the U.S. and numerous foreign jurisdictions. Because the U.S. maintains a worldwide corporate tax system, the foreign and U.S. tax systems are somewhat interdependent. Longstanding international tax norms that determine each country’s jurisdiction to tax cross-border international trade are evolving, such as the Base Erosion and Profit Shifting project (“BEPS”) currently being undertaken by the G8, G20, and Organization for Economic Cooperation and Development. Tax changes pursuant to BEPS could reduce the ability of our foreign subsidiaries to deduct for foreign tax purposes the interest they pay on loans from the Company, thereby increasing the foreign tax liability of the subsidiaries; it is also possible that foreign countries could increase their withholding taxes on dividends and interest. Given the unpredictability of these possible changes and their potential interdependency, it is very difficult to assess the overall effect of such potential tax changes on our earnings and cash flow, but such changes could adversely impact our financial results. Internet Access to Our SEC Filings the Securities and Exchange Commission are made available, Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as our proxy statements and other materials that are filed with, or furnished free of charge, on the Internet at to, www.welltower.com, as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission. We routinely post important information on our website at www.welltower.com in the “Investors” section, including corporate and investor presentations and financial information. We intend to use our website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included on our website under the heading “Investors.” Accordingly, investors should monitor such portion of our website in addition to following our press releases, public conference calls and filings with the Securities and Exchange Commission. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only. Cautionary Statement Regarding Forward-Looking Statements This Annual Report on Form 10-K and the documents incorporated by reference contain statements that constitute “forward-looking statements” as that term is defined in the federal securities laws. When we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, we are making forward-looking statements. In particular, these forward-looking statements include, but are not limited to, those relating to our opportunities to acquire, develop or sell properties; our ability to close our anticipated acquisitions, investments or dispositions on currently anticipated terms, or within currently anticipated timeframes; the expected performance of our operators/tenants and properties; our expected occupancy rates; our ability to declare and to make distributions to stockholders; our investment and financing opportunities and plans; our continued qualification as a real estate investment trust (“REIT”); and our ability to access capital markets or other sources of funds. 30 Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause our actual results to differ materially from our expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: • • • • • • • • • • • • • • • • • • • • • • the status of the economy; the status of capital markets, including availability and cost of capital; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/ tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; our ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting our properties; our ability to re-lease space at similar rates as vacancies occur; our ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government requirements; regulations affecting Medicare and Medicaid reimbursement rates and operational liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting our properties; changes in rules or practices governing our financial reporting; the movement of U.S. and foreign currency exchange rates; our ability to maintain our qualification as a REIT; key management personnel recruitment and retention; and the risks described under “Item 1A — Risk Factors.” We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise. Item 1A. Risk Factors This section discusses the most significant factors that affect our business, operations and financial condition. It does not describe all risks and uncertainties applicable to us, our industry or ownership of our securities. If any of the following risks, as well as other risks and uncertainties that are not yet identified or that we currently think are not material, actually occur, we could be materially adversely affected. In that event, the value of our securities could decline. We group these risk factors into three categories: • Risks arising from our business; • Risks arising from our capital structure; and • Risks arising from our status as a REIT. 31 Risks Arising from Our Business Our investments in and acquisitions of health care and seniors housing properties may be unsuccessful or fail to meet our expectations We are exposed to the risk that some of our acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. If we agree to provide construction funding to an operator/tenant and the project is not completed, we may need to take steps to ensure completion of the project. Such expenditures may negatively affect our results of operations. Furthermore, there can be no assurance that our anticipated acquisitions and investments, the completion of which is subject to various conditions, will be consummated in accordance with anticipated timing, on anticipated terms, or at all. We also may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and this could have an adverse effect on our results of operations and financial condition. Our investments in joint ventures could be adversely affected by our lack of exclusive control over these investments, our partners’ insolvency or failure to meet their obligations and disputes between us and our partners We have entered into, and may continue in the future to enter into, partnerships or joint ventures with other persons or entities. Joint venture investments involve risks that may not be present with other methods of ownership, including the possibility that our partner might become insolvent, refuse to make capital contributions when due or otherwise fail to meet its obligations, which may result in certain liabilities to us for guarantees and other commitments; that our partner might at any time have economic or other business interests or goals that are or become inconsistent with our interests or goals; that we could become engaged in a dispute with our partner, which could require us to expend additional resources to resolve such dispute and could have an adverse impact on the operations and profitability of the joint venture; and that our partner may be in a position to take action or withhold consent contrary to our instructions or requests. In addition, our ability to transfer our interest in a joint venture to a third party may be restricted. In some instances, we and/or our partner may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partner’s interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest may be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share decision-making authority with our partners, which could limit our ability to control the properties in the joint ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as the sale, acquisition or financing of a property. We are exposed to operational risks with respect to our seniors housing operating properties that could adversely affect our revenue and operations We are exposed to various operational risks with respect to our seniors housing operating properties that may increase our costs or adversely affect our ability to generate revenues. These risks include fluctuations in occupancy, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions; competition; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; state regulation and rights of residents related to entrance fees; and the availability and increases in the cost of labor (as a result of unionization or otherwise). Any one or a combination of these factors may adversely affect our revenue and operations. Decreases in our operators’ revenues or increases in our operators’ expenses could affect our operators’ ability to make payments to us Our operators’ revenues are primarily driven by occupancy, private pay rates, and Medicare and Medicaid reimbursement, if applicable. Expenses for these facilities are primarily driven by the costs of labor, food, 32 utilities, taxes, insurance and rent or debt service. Revenues from government reimbursement have, and may continue to, come under pressure due to reimbursement cuts and state budget shortfalls. Operating costs continue to increase for our operators. To the extent that any decrease in revenues and/or any increase in operating expenses result in a property not generating enough cash to make payments to us, the credit of our operator and the value of other collateral would have to be relied upon. To the extent the value of such property is reduced, we may need to record an impairment for such asset. Furthermore, if we determine to dispose of an underperforming property, such sale may result in a loss. Any such impairment or loss on sale would negatively affect our financial results. Increased competition may affect our operators’ ability to meet their obligations to us The operators of our properties compete on a local and regional basis with operators of properties and other health care providers that provide comparable services. We cannot be certain that the operators of all of our facilities will be able to achieve and maintain occupancy and rate levels that will enable them to meet all of their obligations to us. Our operators are expected to encounter increased competition in the future that could limit their ability to attract residents or expand their businesses. A severe cold and flu season, epidemics or any other widespread illnesses could adversely affect the occupancy of our seniors housing operating and triple-net properties Our and our operators’ revenues are dependent on occupancy. It is impossible to predict the severity of the cold and flu season or the occurrence of epidemics or any other widespread illnesses. The occupancy of our seniors housing operating and triple-net properties could significantly decrease in the event of a severe cold and flu season, an epidemic or any other widespread illness. Such a decrease could affect the operating income of our seniors housing operating properties and the ability of our triple-net operators to make payments to us. The insolvency or bankruptcy of our obligors may adversely affect our business, results of operations and financial condition We are exposed to the risk that our obligors may not be able to meet the rent, principal and interest or other payments due us, which may result in an obligor bankruptcy or insolvency, or that an obligor might become subject to bankruptcy or insolvency proceedings for other reasons. Although our operating lease agreements provide us with the right to evict a tenant, demand immediate payment of rent and exercise other remedies, and our loans provide us with the right to terminate any funding obligation, demand immediate repayment of principal and unpaid interest, foreclose on the collateral and exercise other remedies, the bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. An obligor in bankruptcy or subject to insolvency proceedings may be able to limit or delay our ability to collect unpaid rent in the case of a lease or to receive unpaid principal and interest in the case of a loan, and to exercise other rights and remedies. We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of an investment property, avoid the imposition of liens on a property and/or transition a property to a new tenant. In some instances, we have terminated our lease with a tenant and relet the property to another tenant. In some of those situations, we have provided working capital loans to and limited indemnification of the new obligor. If we cannot transition a leased property to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected. We may not be able to timely reinvest our sale proceeds on terms acceptable to us From time to time, we will have cash available from (1) the proceeds of sales of our securities, (2) principal payments on our loans receivable and (3) the sale of properties, including non-elective dispositions, under the terms of master leases or similar financial support arrangements. In order to maintain current revenues and continue generating attractive returns, we expect to re-invest these proceeds in a timely manner. We compete for real estate investments with a broad variety of potential investors. This competition for attractive investments may negatively affect our ability to make timely investments on terms acceptable to us. 33 Failure to properly manage our rapid growth could distract our management or increase our expenses We have experienced rapid growth and development in a relatively short period of time and expect to continue this rapid growth in the future. This growth has resulted in increased levels of responsibility for our management. Future property acquisitions could place significant additional demands on, and require us to expand, our management, resources and personnel. Our failure to manage any such rapid growth effectively could harm our business and, in particular, our financial condition, results of operations and cash flows, which could negatively affect our ability to make distributions to stockholders. Our growth could also increase our capital requirements, which may require us to issue potentially dilutive equity securities and incur additional debt. We depend on Genesis Healthcare, LLC (“Genesis”) and Brookdale Senior Living for a significant portion of our revenues and any inability or unwillingness by Genesis and Brookdale Senior Living to satisfy their obligations under their agreements with us could adversely affect us The properties we lease to Genesis and Brookdale Senior Living account for a significant portion of our revenues, and because our leases with Genesis and Brookdale Senior Living are triple-net leases, we also depend on Genesis and Brookdale Senior Living to pay all insurance, taxes, utilities and maintenance and repair expenses in connection with the leased properties. We cannot assure you that Genesis and Brookdale Senior Living will have sufficient assets, income and access to financing to enable them to make rental payments to us or to otherwise satisfy their respective obligations under our leases, and any inability or unwillingness by Genesis or Brookdale Senior Living to do so could have an adverse effect on our business, results of operations and financial condition. Genesis and Brookdale Senior Living have also agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses, and we cannot assure you that Genesis and Brookdale Senior Living will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations. Genesis and Brookdale Senior Living’s failure to effectively conduct their operations or to maintain and improve our properties could adversely affect their business reputations and their ability to attract and retain patients and residents in our properties, which, in turn, could adversely affect our business, results of operations and financial condition. The properties managed by Sunrise Senior Living, LLC account for a significant portion of our revenues and operating income and any adverse developments in its business or financial condition could adversely affect us Sunrise Senior Living, LLC manages our entire Sunrise property portfolio, which as of December 31, 2016, consisted of 157 seniors housing properties. These properties account for a significant portion of our revenues, and we rely on Sunrise Senior Living, LLC to manage these properties efficiently and effectively. We also rely on Sunrise Senior Living, LLC to set appropriate resident fees, to provide accurate property-level financial results for our properties in a timely manner and to otherwise operate them in compliance with the terms of our management agreements and all applicable laws and regulations. Any adverse developments in Sunrise Senior Living, LLC’s business or financial condition could impair its ability to manage our properties efficiently and effectively, which could adversely affect our business, results of operations, and financial condition. Also, if Sunrise Senior Living, LLC experiences any significant financial, legal, accounting or regulatory difficulties, such difficulties could result in, among other things, acceleration of its indebtedness, impairment of its continued access to capital or the commencement of insolvency proceedings by or against it under the U.S. Bankruptcy Code, which, in turn, could adversely affect our business, results of operations and financial condition. Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations We have operations in Canada and the United Kingdom. International development, ownership, and operating activities involve risks that are different from those we face with respect to our domestic properties and operations. These risks include, but are not limited to, any international currency gain recognized with respect to changes in exchange rates may not qualify under the 75% gross income test or the 95% gross income test that we 34 must satisfy annually in order to qualify and maintain our status as a REIT; challenges with respect to the repatriation of foreign earnings and cash; changes in foreign political, regulatory, and economic conditions, including regionally, nationally, and locally, including, but not limited to, the United Kingdom’s June 2016 vote to exit the European Union (commonly known as “Brexit”); challenges in managing international operations; challenges of complying with a wide variety of foreign laws and regulations, including those relating to real estate, corporate governance, operations, taxes, employment and other civil and criminal legal proceedings; foreign ownership restrictions with respect to operations in countries; differences in lending practices and the willingness of domestic or foreign lenders to provide financing; regional or country-specific business cycles and political and economic instability; and failure to comply with applicable laws and regulations in the United States that affect foreign operations, including, but not limited to, the U.S. Foreign Corrupt Practices Act. If we are unable to successfully manage the risks associated with international expansion and operations, our results of operations and financial condition may be adversely affected. We do not know if our tenants will renew their existing leases, and if they do not, we may be unable to lease the properties on as favorable terms, or at all We cannot predict whether our tenants will renew existing leases at the end of their lease terms, which expire at various times. If these leases are not renewed, we would be required to find other tenants to occupy those properties or sell them. There can be no assurance that we would be able to identify suitable replacement tenants or enter into leases with new tenants on terms as favorable to us as the current leases or that we would be able to lease those properties at all. Our operators and managers may not have the necessary insurance coverage to insure adequately against losses industry, and we continually review our We maintain or require our operators and managers to maintain comprehensive insurance coverage on our properties and their operations with terms, conditions, limits and deductibles that we believe are customary for similarly-situated companies in our insurance programs and requirements. That said, we cannot assure you that we or our operators or managers will continue to be able to maintain adequate levels of insurance and required coverages, which could adversely affect us in the event of a significant uninsured loss. Also, in recent years, long-term/post-acute care and seniors housing operators and managers have experienced substantial increases in both the number and size of patient care liability claims. As a result, general and professional liability costs have increased in some markets. General and professional liability insurance coverage may be restricted or very costly, which may adversely affect the property operators’ and managers’ future operations, cash flows and financial condition, and may have a material adverse effect on the property operators’ and managers’ ability to meet their obligations to us. Our ownership of properties through ground leases exposes us to the loss of such properties upon breach or termination of the ground leases We have acquired an interest in certain of our properties by acquiring a leasehold interest in the property on which the building is located, and we may acquire additional properties in the future through the purchase of interests in ground leases. As the lessee under a ground lease, we are exposed to the possibility of losing the property upon termination of the ground lease or an earlier breach of the ground lease by us. The requirements of, or changes to, governmental reimbursement programs, such as Medicare or Medicaid, could have a material adverse effect on our obligors’ liquidity, financial condition and results of operations, which could adversely affect our obligors’ ability to meet their obligations to us Some of our obligors’ businesses are affected by government reimbursement. To the extent that an operator/ tenant receives a significant portion of its revenues from government payors, primarily Medicare and Medicaid, such revenues may be subject to statutory and regulatory changes, retroactive rate adjustments, recovery of program overpayments or set-offs, court decisions, administrative rulings, policy interpretations, payment or other delays by fiscal intermediaries or carriers, government funding restrictions (at a program level or with to specific facilities) and interruption or delays in payments due to any ongoing government respect 35 investigations and audits at such property. In recent years, government payors have frozen or reduced payments to health care providers due to budgetary pressures. Health care reimbursement will likely continue to be of paramount importance to federal and state authorities. We cannot make any assessment as to the ultimate timing or effect any future legislative reforms may have on the financial condition of our obligors and properties. There can be no assurance that adequate reimbursement levels will be available for services provided by any property operator, whether the property receives reimbursement from Medicare, Medicaid or private payors. Significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on an obligor’s liquidity, financial condition and results of operations, which could adversely affect the ability of an obligor to meet its obligations to us. The Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Reform Laws”), provides those states that expand their Medicaid coverage to otherwise eligible state residents with incomes at or below 138% of the federal poverty level with an increased federal medical assistance percentage, effective January 1, 2014, when certain conditions are met. Given that the federal government substantially funds the Medicaid expansion, it is unclear how many states will ultimately pursue this option, although, as of early February 2017, more than half of the states have expanded Medicaid coverage. The participation by states in the Medicaid expansion could have the dual effect of increasing our tenants’ revenues, through new patients, but further straining state budgets and their ability to pay our tenants. We expect that the new Presidential Administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Health Reform Laws, including Medicaid expansion. Since taking office, President Trump has continued to support the repeal of all or portions of the Health Reform Laws. The House and Senate have recently passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Health Reform Laws and permits such legislation to pass with a majority vote in the Senate. President Trump has also recently issued an executive order in which he stated that it is his Administration’s policy to seek the prompt repeal of the Health Reform Laws and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of Health Reform Laws to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trump’s Administration and the U.S. Congress may have, if any, and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for health care items and services covered by plans that were authorized by the Health Reform Laws. We cannot predict whether the existing Health Reform Laws, or future health care reform legislation or regulatory changes, will have a material impact on our operators’ or tenants’ property or business. If the operations, cash flows or financial condition of our operators and tenants are materially adversely impacted by the Health Reform Laws or future legislation, our revenue and operations may be adversely affected as well. See “Item 1 — Business — Certain Government Regulations — United States — Reimbursement” above. More generally, and because of the dynamic nature of the legislative and regulatory environment for health care products and services, and in light of existing federal deficit and budgetary concerns, we cannot predict the impact that broad-based, far-reaching legislative or regulatory changes could have on the U.S. economy, our business or that of our operators and tenants. Our operators’ or tenants’ failure to comply with federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards could adversely affect such operators’ or tenants’ operations, which could adversely affect our operators’ and tenants’ ability to meet their obligations to us Our operators and tenants generally are subject to varying levels of federal, state, local, and industry- regulated licensure, certification and inspection laws, regulations, and standards. Our operators’ or tenants’ failure to comply with any of these laws, regulations, or standards could result in loss of accreditation, denial of reimbursement, imposition of fines, suspension, decertification or exclusion from federal and state health care programs, loss of license or closure of the facility. Such actions may have an effect on our operators’ or tenants’ ability to make lease payments to us and, therefore, adversely impact us. See “Item 1 — Business — Certain Government Regulations — United States — Fraud & Abuse Enforcement” above. Many of our properties may require a license, registration, and/or certificate of need (“CON”) to operate. Failure to obtain a license, registration, or CON, or loss of a required license, registration, or CON would prevent 36 a facility from operating in the manner intended by the operators or tenants. These events could materially adversely affect our operators’ or tenants’ ability to make rent payments to us. State and local laws also may regulate the expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction or renovation of health care facilities, by requiring a CON or other similar approval from a state agency. See “Item 1 — Business — Certain Government Regulations — United States — Licensing and Certification” above. Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties Real estate investments are relatively illiquid. Our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions will be limited. No assurances can be given that we will recognize full value for any property that we are required to sell for liquidity reasons. Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations. 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. Unfavorable resolution of pending and future litigation matters and disputes could have a material adverse effect on our financial condition From time to time, we may be directly involved in a number of legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits allegedly arising out of our actions or the actions of our operators/tenants or managers in which such operators/tenants or managers have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses. An unfavorable resolution of pending or future litigation may have a material adverse effect on our business, results of operations and financial condition. Regardless of its outcome, litigation may result in substantial costs and expenses and significantly divert the attention of management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, pending or future litigation. In addition, pending litigation or future litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations. Development, redevelopment and construction risks could affect our profitability At any given time, we may be in the process of constructing one or more new facilities that ultimately will require a CON and license before they can be utilized by the operator for their intended use. The operator also may need to obtain Medicare and Medicaid certification and enter into Medicare and Medicaid provider agreements and/or third party payor contracts. In the event that the operator is unable to obtain the necessary CON, licensure, certification, provider agreements or contracts after the completion of construction, there is a risk that we will not be able to earn any revenues on the facility until either the initial operator obtains a license or certification to operate the new facility and the necessary provider agreements or contracts or we find and contract with a new operator that is able to obtain a license to operate the facility for its intended use and the necessary provider agreements or contracts. In connection with our renovation, redevelopment, development and related construction activities, we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations. These factors could result in increased costs or our abandonment of these projects. In addition, we may not be able to obtain financing on favorable terms, which may render us unable to proceed with our development activities, and we may not be able to complete construction and lease-up of a property on schedule, which could result in increased debt service expense or construction costs. Additionally, the time frame required for development, construction and lease-up of these properties means that we may have to wait years for significant cash returns. Because we are required to make cash distributions to our stockholders, if the cash flow from operations or refinancing is not sufficient, we may be 37 forced to borrow additional money to fund such distributions. Newly developed and acquired properties may not produce the cash flow that we expect, which could adversely affect our overall financial performance. In deciding whether to acquire or develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected occupancy, rental rates and capital costs. If our financial projections with respect to a new property are inaccurate as a result of increases in capital costs or other factors, the property may fail to perform as we expected in analyzing our investment. Our estimate of the costs of repositioning or redeveloping an acquired property may prove to be inaccurate, which may result in our failure to meet our profitability goals. Additionally, we may acquire new properties that are not fully leased, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property. We may experience losses caused by severe weather conditions or natural disasters, which could result in an increase of our or our tenants’ cost of insurance, a decrease in our anticipated revenues or a significant loss of the capital we have invested in a property We maintain or require our tenants to maintain comprehensive insurance coverage on our properties with terms, conditions, limits and deductibles that we believe are appropriate given the relative risk and costs of such coverage, and we continually review our insurance programs and requirements. However, a large number of our properties are located in areas particularly susceptible to revenue loss, cost increase or damage caused by severe weather conditions or natural disasters such as hurricanes, earthquakes, tornadoes and floods. We believe, given current industry practice and analysis prepared by outside consultants, that our and our tenants’ insurance coverage is appropriate to cover reasonably anticipated losses that may be caused by hurricanes, earthquakes, tornadoes, floods and other severe weather conditions and natural disasters. Nevertheless, we are always subject to the risk that such insurance will not fully cover all losses and, depending on the severity of the event and the impact on our properties, such insurance may not cover a significant portion of the losses. These losses may lead to an increase of our and our tenants’ cost of insurance, a decrease in our anticipated revenues from an affected property and a loss of all or a portion of the capital we have invested in an affected property. In addition, we or our tenants may not purchase insurance under certain circumstances if the cost of insurance exceeds, in our or our tenants’ judgment, the value of the coverage relative to the risk of loss. We may incur costs to remediate environmental contamination at our properties, which could have an adverse effect on our or our obligors’ business or financial condition Under various federal and state laws, owners or operators of real estate may be required to respond to the presence or release of hazardous substances on the property and may be held liable for property damage, personal injuries or penalties that result from environmental contamination or exposure to hazardous substances. We may become liable to reimburse the government for damages and costs it incurs in connection with the contamination. Generally, such liability attaches to a person based on the person’s relationship to the property. Our tenants or borrowers are primarily responsible for the condition of the property. Moreover, we review environmental site assessments of the properties that we own or encumber prior to taking an interest in them. Those assessments are designed to meet the “all appropriate inquiry” standard, which we believe qualifies us for the innocent purchaser defense if environmental liabilities arise. Based upon such assessments, we do not believe that any of our properties are subject to material environmental contamination. However, environmental liabilities may be present in our properties and we may incur costs to remediate contamination, which could have a material adverse effect on our business or financial condition or the business or financial condition of our obligors. Cybersecurity incidents could disrupt our business and result in the loss of confidential information Our business is at risk from and may be impacted by cybersecurity attacks, including attempts to gain unauthorized access to our confidential data, and other electronic security breaches. Such cyber attacks can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats. While we employ a number of measures to prevent, detect and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cyber attack. Cybersecurity incidents could disrupt our business and compromise the confidential information of our employees, operators and tenants. 38 Actual or threatened terrorist attacks could adversely affect the occupancy and the value of our properties We have significant investments in large metropolitan markets that have been or may be in the future the targets of actual or threatened terrorism attacks, including Boston, Chicago, New York, San Diego, San Francisco, Los Angeles and Washington D.C. As a result, some of our tenants in these markets may choose to relocate to other markets that may be perceived to be less likely targets of future terrorist activity. This could result in an overall decrease in the occupancy of our properties. In addition, terrorist attacks could also result in significant damages to, or loss of, our properties, which could exceed our insurance coverage. Our certificate of incorporation and by-laws contain anti-takeover provisions Our certificate of incorporation and by-laws contain anti-takeover provisions (restrictions on share ownership and transfer and super majority stockholder approval requirements for business combinations) that could make it more difficult for or even prevent a third party from acquiring us without the approval of our incumbent Board of Directors. Provisions and agreements that inhibit or discourage takeover attempts could reduce the market value of our common stock. Our success depends on key personnel whose continued service is not guaranteed We are dependent on key personnel. Although we have entered into employment agreements with our executive officers, losing any one of them could, at least temporarily, have an adverse impact on our operations. We believe that losing more than one could have a material adverse impact on our business. Risks Arising from Our Capital Structure We may become more leveraged Permanent financing for our investments is typically provided through a combination of public offerings of debt and equity securities and the incurrence or assumption of secured debt. The incurrence or assumption of indebtedness may cause us to become more leveraged, which could (1) require us to dedicate a greater portion of our cash flow to the payment of debt service, (2) make us more vulnerable to a downturn in the economy, (3) limit our ability to obtain additional financing, or (4) negatively affect our credit ratings or outlook by one or more of the rating agencies. We are subject to covenants in our debt agreements that may restrict or limit our operations and acquisitions and our failure to comply with the covenants in our debt agreements could have a material adverse impact on our business, results of operations and financial condition Our debt agreements contain various covenants, restrictions and events of default. Among other things, these provisions 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. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, in addition to any other indebtedness cross-defaulted against such instruments. These defaults could have a material adverse impact on our business, results of operations and financial condition. Limitations on our ability to access capital could have an adverse effect on our ability to make future investments or to meet our obligations and commitments We cannot assure you that we will be able to raise the capital necessary to make future investments or to meet our obligations and commitments as they mature. Our access to capital depends upon a number of factors over which we have little or no control, including rising interest rates, inflation and other general market conditions; the market’s perception of our growth potential and our current and potential future earnings and cash distributions; the market price of the shares of our capital stock and the credit ratings of our debt securities; the financial stability of our lenders, which might impair their ability to meet their commitments to us or their willingness to make additional loans to us; changes in the credit ratings on U.S. government debt securities; or default or delay in payment by the United States of its obligations. If our access to capital is limited by these factors or other factors, it could negatively impact our ability to acquire properties, repay or refinance our indebtedness, fund operations or make distributions to our stockholders. 39 Downgrades in our credit ratings could have a material adverse impact on our cost and availability of capital We plan to manage the Company to maintain a capital structure consistent with our current profile, but there can be no assurance that we will be able to maintain our current credit ratings. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Fluctuations in the value of foreign currencies could adversely affect our results of operations and financial position As we expand our operations internationally, currency exchange rate fluctuations could affect our results of operations and financial position. We expect to generate an increasing portion of our revenue and expenses in such foreign currencies as the Canadian dollar and the British pound. Although we may enter into foreign exchange agreements with financial institutions and/or obtain local currency mortgage debt in order to reduce our exposure to fluctuations in the value of foreign currencies, we cannot assure you that foreign currency fluctuations will not have a material adverse effect on us. Our entry into swap agreements may not effectively reduce our exposure to changes in interest rates or foreign currency exchange rates We enter into swap agreements from time to time to manage some of our exposure to interest rate and foreign currency exchange rate volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing our exposure to changes in interest rates or foreign currency exchange rates. When we use forward-starting interest rate swaps, there is a risk that we will not complete the long-term borrowing against which the swap is intended to hedge. If such events occur, our results of operations may be adversely affected. Risks Arising from Our Status as a REIT We might fail to qualify or remain qualified as a REIT We intend to operate as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and believe we have and will continue to operate in such a manner. If we lose our status as a REIT, we will face serious income tax consequences that will substantially reduce the funds available for satisfying our obligations and for distribution to our stockholders because: • we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates; • we could be subject to the federal alternative minimum tax and possibly increased state and local taxes; and • unless we are entitled to relief under statutory provisions, we could not elect to be subject to tax as a REIT for four taxable years following the year during which we were disqualified. Since REIT qualification requires us to meet a number of complex requirements, it is possible that we may fail to fulfill them, and if we do, our earnings will be reduced by the amount of U.S. federal and other income taxes owed. A reduction in our earnings would affect the amount we could distribute to our stockholders. If we do not qualify as a REIT, we would not be required to make distributions to stockholders since a non-REIT is not required to pay dividends to stockholders in order to maintain REIT status or avoid an excise tax. See “Item 1 — Business — Taxation — Federal Income Tax Considerations” above for a discussion of the provisions of the Code that apply to us and the effects of failure to qualify as a REIT. In addition, if we fail to qualify as a REIT, all distributions to stockholders would continue to be treated as dividends to the extent of our current and accumulated earnings and profits, although corporate stockholders may be eligible for the dividends received deduction, and individual stockholders may be eligible for taxation at the rates generally applicable to long-term capital gains (currently at a maximum rate of 20%) with respect to distributions. 40 As a result of all these factors, our failure to qualify as a REIT also could impair our ability to implement our business strategy and would adversely affect the value of our common stock. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to remain qualified as a REIT. Although we believe that we qualify as a REIT, we cannot assure you that we will continue to qualify or remain qualified as a REIT for U.S. federal income tax purposes. See “Item 1 — Business — Taxation — Federal Income Tax Considerations” above. Certain subsidiaries might fail to qualify or remain qualified as a REIT We own interests in a number of entities which have elected to be taxed as REITs for federal income tax purposes, some of which we consolidate for financial reporting purposes but each of which is treated as a separate REIT for federal income tax purposes (each a “Subsidiary REIT”). To qualify as a REIT, each Subsidiary REIT must independently satisfy all of the REIT qualification requirements under the Code, together with all other rules applicable to REITs. Provided that each Subsidiary REIT qualifies as a REIT, our interests in the Subsidiary REITs will be treated as qualifying real estate assets for purposes of the REIT asset tests. See “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Asset Tests” above. If a Subsidiary REIT fails to qualify as a REIT in any taxable year, such Subsidiary REIT will be subject to federal and state income taxes and may not be able to qualify as a REIT for the four subsequent taxable years. Any such failure could have an adverse effect on our ability to comply with the REIT income and asset tests, and thus our ability to qualify as a REIT, unless we are able to avail ourselves of certain relief provisions. The 90% annual distribution requirement will decrease our liquidity and may limit our ability to engage in otherwise beneficial transactions To comply with the 90% distribution requirement applicable to REITs and to avoid the nondeductible excise tax, we must make distributions to our stockholders. See “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Annual Distribution Requirements” above. Although we anticipate that we generally will have sufficient cash or liquid assets to enable us to satisfy the REIT distribution requirement, it is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, or we may decide to retain cash or distribute such greater amount as may be necessary to avoid income and excise taxation. This may be due to timing differences between the actual receipt of income and actual payment of deductible expenses, on the one hand, and the inclusion of that income and deduction of those expenses in arriving at our taxable income, on the other hand. In addition, non-deductible expenses such as principal amortization or repayments or capital expenditures in excess of non-cash deductions may cause us to fail to have sufficient cash or liquid assets to enable us to satisfy the 90% distribution requirement. In the event that timing differences occur, or we deem it appropriate to retain cash, we may borrow funds, issue additional equity securities (although we cannot assure you that we will be able to do so), pay taxable stock dividends, if possible, distribute other property or securities or engage in another transaction intended to enable us to meet the REIT distribution requirements. This may require us to raise additional capital to meet our obligations. The lease of qualified health care properties to a taxable REIT subsidiary is subject to special requirements We lease certain qualified health care properties to taxable REIT subsidiaries (or limited liability companies of which the taxable REIT subsidiaries are members), which lessees contract with managers (or related parties) to manage the health care operations at these properties. The rents from this taxable REIT subsidiary lessee structure are treated as qualifying rents from real property if (1) they are paid pursuant to an arms-length lease of a qualified health care property with a taxable REIT subsidiary and (2) the manager qualifies as an eligible independent contractor (as defined in the Code). If any of these conditions are not satisfied, then the rents will not be qualifying rents. See “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Income Tests” above. 41 If certain sale-leaseback transactions are not characterized by the Internal Revenue Service as “true leases,” we may be subject to adverse tax consequences We have purchased certain properties and leased them back to the sellers of such properties, and we may enter into similar transactions in the future. We intend for any such sale-leaseback transaction to be structured in such a manner that the lease will be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property for U.S. federal income tax purposes. However, depending on the terms of any specific transaction, the Internal Revenue Service might take the position that the transaction is not a “true lease” but is more properly treated in some other manner. In the event any sale-leaseback transaction is challenged and successfully re-characterized by the Internal Revenue Service, we would not be entitled to claim the deductions for depreciation and cost recovery generally available to an owner of property. Furthermore, if a sale-leaseback transaction were so re-characterized, we might fail tests or income tests and, consequently, could lose our REIT status effective with the year of re-characterization. See “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Asset Tests” and “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Income Tests” above. Alternatively, the amount of our REIT taxable income could be recalculated, which may cause us to fail to meet the REIT annual distribution requirements for a taxable year. See “Item 1 — Business — Taxation — Federal Income Tax Considerations — Qualification as a REIT — Annual Distribution Requirements” above. to satisfy the REIT asset The new Presidential Administration may propose substantial changes to fiscal and tax policies that, if enacted, may adversely affect REITs and our business The recently inaugurated U.S. President and his Administration have called for substantial changes to fiscal and tax policies, which may include comprehensive tax reform. We cannot predict the impact, if any, of such tax reform to REITs or to our business. It is possible that any comprehensive tax reform could adversely affect REITs in general or our business specifically. Until any such tax reform changes are enacted, we will not know whether we will benefit from, or will be negatively affected by, such changes. Item 1B. Unresolved Staff Comments None. 42 Item 2. Properties We own our corporate headquarters located at 4500 Dorr Street, Toledo, Ohio 43615. We also lease corporate offices in Canada, the United Kingdom and Luxembourg and have ground leases relating to certain of our properties. The following table sets forth certain information regarding the properties that comprise our consolidated real property and real estate loan investments as of December 31, 2016 (dollars in thousands and annualized revenues adjusted for timing of investment): Property Location Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . California . . . . . . . . . . . . . . . . . . . . . . . . . Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . Connecticut . . . . . . . . . . . . . . . . . . . . . . . . District Of Columbia . . . . . . . . . . . . . . . . . Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . Massachusetts . . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri Mississippi . . . . . . . . . . . . . . . . . . . . . . . . Montana . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . New Hampshire . . . . . . . . . . . . . . . . . . . . . New Jersey . . . . . . . . . . . . . . . . . . . . . . . . New Mexico . . . . . . . . . . . . . . . . . . . . . . . Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . New York . . . . . . . . . . . . . . . . . . . . . . . . . Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . Rhode Island . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . Washington . . . . . . . . . . . . . . . . . . . . . . . . Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . West Virginia . . . . . . . . . . . . . . . . . . . . . . Total domestic . . . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . Total international . . . . . . . . . . . . . . . . . . . Grand total . . . . . . . . . . . . . . . . . . . . . . . . . Triple-Net Seniors Housing Operating Number of Properties Total Investment Annualized Revenues Number of Properties Total Investment Annualized Revenues — 4 69 5 15 1 1 6 7 1 — 14 — 3 2 2 39 4 2 5 4 4 — — 1 — 4 8 1 2 11 4 2 — 6 3 — 2 20 1 2 1 12 — — 268 104 48 152 420 $ — $ 60,346 2,564,855 140,940 391,695 63,194 21,160 550,064 122,512 32,434 — 448,055 — 70,132 38,805 50,879 1,159,025 153,359 49,790 110,532 113,982 134,202 — — 40,413 — 118,242 239,091 18,606 36,658 468,303 193,825 40,441 — 81,188 60,107 — 50,044 593,826 16,892 37,677 27,428 410,424 — — 8,709,126 2,058,447 1,291,441 3,349,888 — 22,075 585,482 40,800 126,697 14,544 6,268 78,566 36,955 10,068 — 114,224 — 17,262 13,096 12,278 224,522 47,671 17,831 26,436 23,538 20,225 — — 7,181 — 28,647 65,946 1,496 10,576 85,404 37,672 3,864 — 39,484 20,290 — 15,624 118,877 10,796 11,252 6,405 74,123 — — 1,976,175 427,444 273,270 700,714 $12,059,014 $2,676,889 4 2 28 7 14 — 6 34 8 4 2 12 37 29 7 3 21 8 — 6 9 2 3 1 49 4 4 56 — 5 9 28 19 10 31 — 5 4 47 2 13 — 24 8 4 569 6 56 62 631 $ 35,149 26,126 506,530 241,603 178,295 — 105,106 585,009 98,973 56,783 32,254 259,844 519,632 267,942 74,482 20,260 226,246 144,638 — 99,727 205,989 28,164 27,446 6,050 359,869 32,988 52,757 1,238,636 — 83,529 197,196 222,137 175,095 76,035 911,973 — 33,116 40,926 631,977 30,908 181,903 — 444,970 130,602 68,678 8,659,543 153,544 996,194 1,149,738 $ 3,856 2,237 54,595 21,311 21,102 — 15,537 48,896 11,019 5,346 3,564 25,446 54,568 24,639 10,037 3,369 31,814 8,829 — 9,989 17,162 870 3,241 959 33,706 4,067 19,578 131,635 — 12,519 38,570 41,569 13,864 6,741 90,347 4,603 5,656 3,600 66,283 2,533 19,166 2,680 45,324 15,138 19,591 955,556 10,530 88,262 98,792 $9,809,281 $1,054,348 43 Property Location Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient Medical Number of Properties Total Investment Annualized Revenues 1 3 1 4 29 3 1 33 10 1 5 8 7 1 5 1 2 8 7 3 2 1 7 3 5 8 7 2 1 1 7 53 2 6 20 $ 21,859 30,531 22,845 65,537 841,277 29,924 41,153 400,031 175,245 6,794 51,613 146,612 75,300 7,677 85,994 20,470 22,315 172,680 142,631 55,776 35,186 14,009 205,118 33,235 45,069 102,417 67,209 24,987 9,506 25,853 78,058 891,821 33,073 179,100 267,226 $ 2,562 5,233 2,079 8,466 80,417 4,097 2,318 48,218 24,572 1,653 8,920 18,383 12,673 752 13,394 2,980 1,931 28,877 18,383 7,199 5,465 806 42,169 3,715 4,194 6,849 11,365 3,262 1,575 2,138 10,499 97,226 5,103 20,751 27,991 Total domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grand total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258 4 262 4,428,131 267,204 536,215 23,849 $4,695,335 $560,064 The following table sets forth occupancy, coverages and average annualized revenues for certain property types (excluding investments in unconsolidated entities): Occupancy(1) Coverages(1,2) Average Annualized Revenues(3) 2016 2015 2016 2015 2016 2015 . . . . . . . . . . . . . . . . . Triple-net(4) Seniors housing operating(5) . . . . Outpatient medical(6) . . . . . . . . . . 86.5% 87.2% 1.43x n/a 88.7% 91.2% n/a 94.7% 95.1% 1.49x n/a n/a $16,841 59,627 33 $15,966 per bed/unit 60,260 per unit 32 per sq. ft. (1) We use unaudited, periodic financial information provided solely by tenants/borrowers to calculate occupancy and coverages for properties other than medical office buildings and have not independently verified the information. (2) Represents the ratio of our triple-net customers’ earnings before interest, taxes, depreciation, amortization, rent and management fees to contractual rent or interest due us. Data reflects the 12 months ended September 30 for the periods presented. (3) Represents annualized revenues divided by total beds, units or square feet as presented in the tables above. 44 (4) Occupancy represents average quarterly operating occupancy based on the quarters ended September 30 and excludes properties that are unstabilized, closed or for which data is not available or meaningful. (5) Occupancy for seniors housing operating represents average occupancy for the three months ended December 31. (6) Outpatient medical facilities occupancy represents the percentage of rentable square feet total leased and occupied (including month-to-month and holdover leases and excluding terminations) as of December 31. The following table sets forth information regarding lease expirations for certain portions of our portfolio as of December 31, 2016 (dollars in thousands): 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Thereafter Expiration Year Triple-net: Properties . . . . . . . Base rent(1) . . . . . . $ % of base rent . . . Units . . . . . . . . . . % of units . . . . . . Outpatient medical: 30 12,936 51 $ 37,120 $ 1.4% 4.0% 1,165 3,151 2.0% 5.5% 0 0 0.0% 0 0.0% 14 17,740 $ 12 24,906 $ $ 7 7,295 $ 4 4,175 $ 5 11,076 61 $ 72,866 $ 32 64,361 368 $ 665,719 1.9% 1,225 2.1% 2.7% 2,289 4.0% 0.8% 690 1.2% 0.5% 317 0.6% 1.2% 762 1.3% 7.9% 4,538 7.9% 7.0% 3,724 6.5% 72.5% 39,644 68.9% Square feet . . . . . . 1,253,812 Base rent(1) . . . . . . $ 32,570 % of base rent . . . Leases . . . . . . . . . % of leases . . . . . . 8.1% 337 15.1% 923,728 $ 23,952 1,171,476 30,651 $ 1,153,444 30,505 $ 1,442,424 38,660 $ 2,297,626 48,713 $ 1,168,037 28,635 $ 1,347,883 37,287 $ 669,305 $ 18,552 1,064,151 27,262 $ 3,684,305 83,817 $ 6.0% 263 11.8% 7.7% 296 13.2% 7.6% 259 11.6% 9.7% 255 11.4% 12.2% 222 9.9% 7.1% 171 7.6% 9.3% 100 4.5% 4.6% 91 4.1% 6.8% 119 5.3% 20.9% 125 5.5% (1) The most recent monthly base rent including straight line for leases with fixed escalators or annual cash rents with contingent escalators. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles. Item 3. Legal Proceedings From time to time, there are various legal proceedings pending against us that arise in the ordinary course of our business. Management does not believe that the resolution of any of these legal proceedings either individually or in the aggregate will have a material adverse effect on our business, results of operations or financial condition. Despite management’s view of the ultimate resolution of these legal proceedings, we may have significant legal expenses and costs associated with the defense of such matters. Further, management cannot predict the outcome of these legal proceedings and if management’s expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, results of operations or financial condition. From time to time, we are party to certain legal proceedings for which third parties, such as tenants, operators and/or managers are contractually obligated to indemnify, defend and hold us harmless. In some of these matters, the indemnitors have insurance for the potential damages. In other matters, we are being defended by tenants and other obligated third parties and these indemnitors may not have sufficient insurance, assets, income or resources to satisfy their defense and indemnification obligations to us. The unfavorable resolution of such legal proceedings could, individually or in the aggregate, materially adversely affect the indemnitors’ ability to satisfy their respective obligations to us, which, in turn, could have a material adverse effect on our business, results of operations or financial condition. It is management’s opinion that there are currently no such legal proceedings pending that will, individually or in the aggregate, have such a material adverse effect. Item 4. Mine Safety Disclosures None. 45 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities There were 5,066 stockholders of record as of January 31, 2017. The following table sets forth, for the periods indicated, the high and low prices of our common stock on the New York Stock Exchange (NYSE:HCN), and common dividends paid per share: 2016 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter 2015 First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fourth Quarter Sales Price Dividends Paid High Low Per Share $70.45 76.24 80.19 74.85 $84.88 79.60 70.22 71.25 $52.80 66.55 72.34 59.39 $73.20 65.48 61.00 58.21 $ 0.86 0.86 0.86 0.86 $0.825 0.825 0.825 0.825 Our Board of Directors has approved a new quarterly cash dividend rate of $0.87 per share of common stock per quarter, commencing with the February 2017 dividend. The declaration and payment of quarterly dividends remains subject to the review and approval of the Board of Directors. Stockholder Return Performance Presentation Set forth below is a line graph comparing the yearly percentage change and the cumulative total stockholder return on our shares of common stock against the cumulative total return of the S & P Composite-500 Stock Index and the FTSE NAREIT Equity Index. As of December 31, 2016, 161 companies comprised the FTSE NAREIT Equity Index. The Index consists of REITs identified by NAREIT as equity (those REITs which have at least 75% of their investments in real property). The data are based on the closing prices as of December 31 for each of the five years. 2011 equals $100 and dividends are assumed to be reinvested. S&P 500 Welltower Inc. FTSE NAREIT Equity 200 175 s r a l l o D 150 125 100 2011 2012 2013 2014 2015 2016 S & P 500 Welltower Inc. FTSE NAREIT Equity 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 100.00 100.00 100.00 116.00 118.21 118.06 153.57 108.27 120.97 174.60 160.79 157.43 177.01 151.58 162.46 198.18 156.69 176.30 46 Except to the extent that we specifically incorporate this information by reference, the foregoing Stockholder Return Performance Presentation shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended. This information shall not otherwise be deemed filed under such Acts. Issuer Purchases of Equity Securities Total Number of Shares Purchased(1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs Period October 1, 2016 through October 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . November 1, 2016 through November 30, 2016 . . . . . . . . . . . . . December 1, 2016 through — 145 December 31, 2016 . . . . . . . . . . . . . 37,916 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . 38,061 $ — 62.33 66.93 $66.90 (1) During the three months ended December 31, 2016, the Company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations. (2) No shares were purchased as part of publicly announced plans or programs. 47 Item 6. Selected Financial Data The following selected financial data for the five years ended December 31, 2016 are derived from our audited consolidated financial statements (in thousands, except per share data): Operating Data Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . Income (loss) from unconsolidated entities . . . . . . . . . . . Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net . . . . . . . . . . . Gain (loss) on real estate dispositions, net Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock redemption charge . . . . . . . . . . . . . . . . . Net income (loss) attributable to noncontrolling Year Ended December 31, 2012 2013 2014 2015 2016 $1,805,044 1,619,132 $2,880,608 2,778,363 $3,343,546 2,959,333 $3,859,826 3,223,709 $4,281,160 3,571,907 185,912 (7,612) 2,482 180,782 114,058 — 294,840 69,129 6,242 102,245 (7,491) (8,187) 86,567 51,713 — 138,280 66,336 — 384,213 1,267 (27,426) 358,054 7,135 147,111 512,300 65,408 — 636,117 (6,451) (21,504) 608,162 — 280,387 888,549 65,406 — 709,253 19,128 (10,357) 718,024 — 364,046 1,082,070 65,406 — interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,415) (6,770) 147 4,799 4,267 Net income attributable to common stockholders . . . . . . $ 221,884 $ 78,714 $ 446,745 $ 818,344 $1,012,397 Other Data Average number of common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224,343 225,953 276,929 278,761 306,272 307,747 348,240 349,424 358,275 360,227 Per Share Data Basic: Income from continuing operations attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders * . . Diluted: Income from continuing operations attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders * . . Cash distributions per common share . . . . . . . . . . . . . . . $ $ $ $ $ 0.48 0.51 0.99 0.48 0.50 0.98 2.96 $ $ $ $ $ 0.10 0.19 0.28 0.10 0.19 0.28 3.06 $ $ $ $ $ 1.44 0.02 1.46 1.43 0.02 1.45 3.18 $ $ $ $ $ 2.35 — 2.35 2.34 — 2.34 3.30 $ $ $ $ $ 2.83 — 2.83 2.81 — 2.81 3.44 2012 2013 2014 2015 2016 December 31, Balance Sheet Data Net real estate investments . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . Total long-term obligations . . . . . . . Total liabilities . . . . . . . . . . . . . . . . Total preferred stock . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . $17,423,009 19,491,552 8,474,342 8,936,441 1,022,917 10,520,519 $21,680,221 23,026,666 10,594,723 11,235,296 1,017,361 11,756,331 $22,851,196 24,962,923 10,776,640 11,403,465 1,006,250 13,473,049 $26,888,685 29,023,845 12,967,686 13,664,877 1,006,250 15,175,885 $26,563,629 28,865,184 12,358,245 13,185,279 1,006,250 15,281,472 * Amounts may not sum due to rounding 48 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations EXECUTIVE SUMMARY Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital Market Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Transactions in 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Performance Indicators, Trends and Uncertainties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Off-Balance Sheet Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contractual Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RESULTS OF OPERATIONS Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors Housing Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient Medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-Segment/Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 50 51 52 53 54 55 56 57 57 58 59 62 65 68 OTHER Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Critical Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 74 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is based primarily on the consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk Factors” above. Executive Summary Company Overview Welltower Inc. (NYSE: HCN), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post- acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. WelltowerTM, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets. The following table summarizes our consolidated portfolio for the year ended December 31, 2016 (dollars in thousands): Type of Property Net Operating Income (NOI)(1) Percentage of NOI Number of Properties Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,208,860 814,114 380,264 50.3% 33.9% 15.8% 631 420 262 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,403,238 100.0% 1,313 (1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. Business Strategy Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location. Substantially all of our revenues are derived from operating lease rentals, resident fees and services, and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our customers/partners experience operating difficulties and become unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/ partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the outpatient medical portfolio with a comprehensive process including review of tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, 50 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations capital improvement needs, and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment. In addition to our asset management and research efforts, we also structure our investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates. For the year ended December 31, 2016, rental income and resident fees represented 39% and 59%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments. Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt. Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our primary unsecured credit facility. At December 31, 2016, we had $419,378,000 of cash and cash equivalents, $187,842,000 of restricted cash and $2,313,122,000 of available borrowing capacity under our primary unsecured credit facility. that Capital Market Outlook We believe the capital markets remain supportive of our investment strategy. For the year ended December 31, 2016, we raised $1,235,138,000 in aggregate gross proceeds through the issuance of common stock and unsecured debt. The capital raised, in combination with available cash and borrowing capacity under our primary unsecured credit facility, supported pro rata gross new investments of $3,007,040,000 for the year. We expect attractive investment opportunities to remain available in the future as we continue to leverage the benefits of our relationship investment strategy. 51 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Key Transactions in 2016 Capital. facility and the $500,000,000 unsecured term credit In March 2016, we issued $700,000,000 of 4.25% senior unsecured notes due 2026, generating approximately $688,560,000 of net proceeds. In May 2016, we closed on a new primary unsecured credit facility that includes a $3,000,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility plus an option to upsize the unsecured revolving 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 facility also allows us to borrow up to $1,000,000,000 in alternate currencies. Based on our current credit ratings, the unsecured revolving credit facility is priced at 0.90% over LIBOR with a 0.15% annual facility fee and the unsecured term credit facilities are priced at 0.95% over LIBOR for the U.S. tranche and CDOR for the Canadian tranche. The unsecured term credit facilities mature on May 13, 2021 and the unsecured revolving credit facility matures on May 13, 2020. The unsecured revolving credit facility can be extended for two successive terms of six months each at our option. Also, for the year ended December 31, 2016, we raised $527,530,000 through our dividend reinvestment program and our Equity Shelf Program (as defined below). Investments. The following summarizes our acquisitions and joint venture investments made during the year ended December 31, 2016 (dollars in thousands): Properties Investment Amount(1) Capitalization Rates(2) Book Amount(3) Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 34 3 51 $ 450,537 1,680,165 51,434 $2,182,136 6.7% 6.2% 6.3% 6.3% $ 526,814 1,801,446 56,386 $2,384,646 (1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP. (2) Represents annualized contractual or projected income to be received in cash divided by investment amounts. (3) Represents amounts recorded on our books including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our consolidated financial statements for additional information. Dispositions. The following summarizes property dispositions made during the year ended December 31, 2016 (dollars in thousands): Properties Proceeds(1) Capitalization Rates(2) Book Amount(3) Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 7 158 $2,288,211 80,300 $2,368,511 8.8% 7.9% 8.8% $1,773,614 78,786 $1,852,400 (1) Represents pro rata proceeds received upon disposition including any seller financing. (2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds. (3) Represents carrying value of assets at time of disposition. See Note 5 to our consolidated financial statements for additional information. Dividends. Our Board of Directors increased the annual cash dividend to $3.48 per common share ($0.87 per share quarterly), as compared to $3.44 per common share for 2016, beginning in February 2017. The dividend declared for the quarter ended December 31, 2016 represents the 183rd consecutive quarterly dividend payment. 52 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Key Performance Indicators, Trends and Uncertainties We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to operating performance, credit strength and concentration risk. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results, in making operating decisions and for budget planning purposes. Operating Performance. We believe that net income attributable to common stockholders (“NICS”) is the most appropriate earnings measure. Other useful supplemental measures of our operating performance include funds from operations attributable to common stockholders (“FFO”), net operating income from continuing operations (“NOI”) and same store NOI (“SSNOI”); however, these supplemental measures are not defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations of FFO, NOI and SSNOI. These earnings in the valuation, comparison and investment measures are widely used by investors and analysts recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands): Year Ended December 31, 2014 2015 2016 Net income attributable to common stockholders . . . . . . . . . . . . $ 446,745 $ 818,344 $1,012,397 1,593,143 Funds from operations attributable to common stockholders . . . 2,404,177 Net operating income from continuing operations . . . . . . . . . . . 1,445,748 Same store net operating income . . . . . . . . . . . . . . . . . . . . . . . . . 1,409,640 2,237,569 1,425,795 1,174,081 1,940,188 1,404,158 Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt, net of cash and IRC section 1031 deposits. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain a capital structure consistent with our current profile. The coverage ratios are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented: Year Ended December 31, 2014 2015 2016 Net debt to book capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net debt to undepreciated book capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . Net debt to market capitalization ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted interest coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted fixed charge coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 43% 45% 43% 38% 40% 37% 28% 33% 31% 4.19x 3.32x 4.20x 3.32x 3.73x 2.96x Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Concentration Risk. We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to experience downturns. Property mix measures the portion of our NOI that relates to our various property types. Relationship mix measures the portion of our NOI that relates to our top five relationships. Geographic mix measures the portion of our NOI that relates to our top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by NOI for the periods indicated below: December 31, 2014 2015 2016 Property mix:(1) Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53% 54% 50% 33% 31% 34% 14% 15% 16% Relationship mix:(1) Genesis Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sunrise Senior Living(2) Revera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brookdale Senior Living(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benchmark Senior Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16% 17% 16% 15% 13% 13% 6% 5% 4% 9% 6% 7% 4% 4% 4% 52% 54% 55% Geographic mix:(1) California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% 10% 10% 8% 8% 8% 7% 6% 5% 7% 9% 7% 7% 7% 7% 63% 60% 61% (1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. (2) Revera owns a controlling interest in Sunrise Senior Living. We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Item 1 — Business — Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A — Risk Factors” and other sections of this Annual Report on Form 10-K. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and Company-specific trends. Please refer to “Item 1 — Business,” “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for further discussion of these risk factors. Corporate Governance Maintaining investor confidence and trust is important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business 54 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at www.welltower.com/investors/governance. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only. Liquidity and Capital Resources Sources and Uses of Cash Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows (dollars in thousands): Year Ended One Year Change December 31, 2014 December 31, 2015 $ % Year Ended December 31, 2016 One Year Change Two Year Change $ % $ % Beginning cash and cash equivalents . . . . $ 158,780 $ 473,726 $ 314,946 198% $ 360,908 $ (112,818) -24% $ 202,128 127% Cash provided from (used in): Operating activities . . . . . . . . 1,138,670 1,373,468 234,798 21% 1,628,695 255,227 19% 490,025 43% Investing activities . . . . . . . . (2,126,206) (3,484,160) (1,357,954) 64% (309,503) 3,174,657 -91% 1,816,703 -85% Financing activities . . . . . . . . 1,303,172 2,006,449 703,277 54% (1,240,448) (3,246,897) n/a (2,543,620) n/a Effect of foreign currency translation on cash and cash equivalents . . . . . . . . Ending cash and cash (690) (8,575) (7,885) 1,143% (20,274) (11,699) 136% (19,584)2,838% equivalents . . . . . . . . $ 473,726 $ 360,908 $ (112,818) -24% $ 419,378 $ 58,470 16% $ (54,348) -11% Operating Activities. The change in net cash provided from operating activities is primarily attributable to increases in NOI, which is primarily due to acquisitions, net of dispositions. Please see “Results of Operations” for further discussion. For the years ended December 31, 2014, 2015 and 2016, cash flows from operations exceeded cash distributions to stockholders. 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Investing Activities. The changes in net cash used in investing activities are primarily attributable to net changes in real property investments, real estate loans receivable and investments in unconsolidated entities which are summarized above in “Key Transactions in 2016.” Please refer to Notes 3 and 6 of our consolidated financial statements for additional information. The following is a summary of cash used in non-acquisition capital improvement activities (dollars in thousands): New development . . . . . . . . . . . . . Recurring capital expenditures, tenant improvements and lease commissions . . . . . . . . . . . . . . . Renovations, redevelopments and other capital improvements . . . Year Ended One Year Change December 31, 2014 December 31, 2015 $ % Year Ended December 31, 2016 One Year Change Two Year Change $ % $ % $197,881 $244,561 $ 46,680 24% $403,131 $158,570 65% $205,250 104% 59,134 64,458 5,324 9% 66,332 1,874 3% 7,198 12% 73,646 123,294 49,648 67% 152,814 29,520 24% 79,168 107% Total . . . . . . . . . . . . . . . . . . . . . . . $330,661 $432,313 $101,652 31% $622,277 $189,964 44% $291,616 88% The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods. Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization. Generally, these expenditures have increased as a result of acquisitions, primarily in our seniors housing operating segment. Financing Activities. The changes in net cash provided from financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuance/redemptions of common and preferred stock, and dividend payments which are summarized above in “Key Transactions in 2016.” Please refer to Notes 9, 10 and 13 of our consolidated financial statements for additional information. Off-Balance Sheet Arrangements At December 31, 2016, we had investments in unconsolidated entities with our ownership ranging from 10% to 50%. Please see Note 7 to our consolidated financial statements for additional information. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. Please see Note 11 to our consolidated financial statements for additional information. At December 31, 2016, we had twelve outstanding letter of credit obligations. Please see Note 12 to our consolidated financial statements for additional information. 56 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Contractual Obligations The following table summarizes our payment requirements under contractual obligations as of December 31, 2016 (in thousands): Contractual Obligations Total 2017 2018-2019 2020-2021 Thereafter Unsecured revolving credit facility(1) Senior unsecured notes and term credit . . . . . . . . . . $ 645,000 $ — $ — $ 645,000 $ — Payments Due by Period facilities:(2) U.S. Dollar senior unsecured notes . . . . . . . . . . Canadian Dollar senior unsecured notes(3) . . . . Pounds Sterling senior unsecured notes(3) . . . . . U.S. Dollar term credit facility . . . . . . . . . . . . . Canadian Dollar term credit facility(3) . . . . . . . . 6,050,000 223,447 1,295,385 505,000 186,206 Secured debt:(2,3) 900,000 — 223,447 — 5,000 — 1,050,000 — — — — 500,000 — 186,206 4,100,000 — — 1,295,385 — — Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconsolidated . . . . . . . . . . . . . . . . . . . . . . . . . 3,465,066 668,282 550,620 1,321,310 153,360 22,886 516,038 40,919 1,077,098 451,117 Contractual interest obligations:(4) Unsecured revolving credit facility . . . . . . . . . . Senior unsecured notes and term loans(3) . . . . . . . . . . . . . . . . . . . . Consolidated secured debt(3) . . . . . . . . . . . . . Unconsolidated secured debt(3) . . . . . . . . . . . . . . . . . . Capital lease obligations(5) Operating lease obligations(5) . . . . . . . . . . . . . . . . Purchase obligations(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities(6) 53,638 3,386,130 623,851 163,201 93,836 1,105,992 523,099 4,179 10,728 352,450 132,620 24,801 4,731 16,939 242,962 1,475 21,455 686,783 188,243 49,414 9,012 34,332 277,995 2,704 21,455 578,625 121,016 33,968 8,346 33,457 — — — 1,768,272 181,972 55,018 71,747 1,021,264 2,142 — Total contractual obligations . . . . . . . . . . . . . . . . . $18,992,312 $1,360,212 $3,799,608 $3,808,477 $10,024,015 (1) Relates to our unsecured revolving credit facility with an aggregate commitment of $3,000,000,000. See Note 9 to our consolidated financial statements. (2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. (3) Based on foreign currency exchange rates in effect as of balance sheet date. (4) Based on variable interest rates in effect as of balance sheet date. (5) See Note 12 to our consolidated financial statements. (6) Primarily relates to payments to be made under our Supplemental Executive Retirement Plan, which is discussed in Note 19 to the consolidated financial statements. Capital Structure Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2016, we were in compliance with all of the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. We plan to manage the Company to 57 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. On May 1, 2015, we filed with the Securities and Exchange Commission (1) an open-ended automatic or “universal” shelf registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan under which we may issue up to 15,000,000 shares of common stock. As of January 31, 2017, 7,737,978 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with each of UBS Securities LLC, KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $630,015,000 aggregate amount of our common stock (“Equity Shelf Program”). As of January 31, 2017, we had $170,640,000 of remaining capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our primary unsecured credit facility. Results of Operations Summary Our primary sources of revenue include rent, resident fees and services, and interest income. Our primary expenses include interest expense, depreciation and amortization, property operating expenses, transaction costs and general and administrative expenses. We evaluate our business and make resource allocations on our three business segments: triple-net, seniors housing operating and outpatient medical. The primary performance measures for our properties are NOI and SSNOI, which are discussed below. Please see Note 17 to our consolidated financial statements for additional information. The following is a summary of our results of operations (dollars in thousands, except per share amounts): Year Ended One Year Change December 31, 2014 December 31, 2015 Amount % Year Ended December 31, 2016 One Year Change Two Year Change Amount % Amount % Net income attributable to common stockholders . . . . . $ 446,745 $ 818,344 $371,599 83% $1,012,397 $194,053 24%$565,652 127% Funds from operations attributable to common stockholders . . . . . . . . . . . . . 1,174,081 1,409,640 235,559 20% 1,593,143 183,503 13% 419,062 36% Adjusted EBITDA . . . . . . . . . . 1,813,241 2,091,754 278,513 15% 2,246,507 154,753 7% 433,266 24% Net operating income from continuing operations . . . . . 1,940,188 2,237,569 297,381 15% 2,404,177 166,608 7% 463,989 24% 3% 19,953 1% 41,590 2% 1,445,748 21,637 Same store NOI . . . . . . . . . . . . 1,404,158 1,425,795 Per share data (fully diluted): Net income attributable to common stockholders . . . $ 1.45 $ 2.34 $ 0.89 61% $ 2.81 $ 0.47 20%$ 1.36 94% Funds from operations attributable to common stockholders . . . . . . . . . . . Adjusted interest coverage 3.82 4.03 0.21 5% 4.42 0.39 10% 0.60 16% ratio . . . . . . . . . . . . . . . . . . . 3.73x 4.20x 0.47x 13% 4.19x -0.01x 0% 0.46x 12% Adjusted fixed charge coverage ratio . . . . . . . . . . . 2.96x 3.32x 0.36x 12% 3.32x 0.00x 0% 0.36x 12% 58 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following table represents the changes in outstanding common stock for the period from January 1, 2014 to December 31, 2016 (in thousands): December 31, 2014 Year Ended December 31, 2015 December 31, 2016 Beginning balance . . . . . . . . . . . . . . . . . . . . . Public offerings . . . . . . . . . . . . . . . . . . . . . . . Dividend reinvestment plan issuances . . . . . . Senior note conversions . . . . . . . . . . . . . . . . . Preferred stock conversions . . . . . . . . . . . . . . Option exercises . . . . . . . . . . . . . . . . . . . . . . . Equity Shelf Program issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net 289,564 33,925 4,123 259 233 498 — 188 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . 328,790 Average number of shares outstanding: 328,790 19,550 4,024 1,330 — 249 696 139 354,778 354,778 — 4,145 — — 141 3,135 403 Totals 289,564 53,475 12,292 1,589 233 888 3,831 730 362,602 362,602 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,272 307,747 348,240 349,424 358,275 360,227 During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, a large portion of our earnings are derived primarily from long-term investments with predictable rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes, secured debt and borrowings under our primary unsecured credit facility. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us. Triple-net The following is a summary of our NOI for the triple-net segment (dollars in thousands): Year Ended One Year Change December 31, 2014 December 31, 2015 $ % Year Ended December 31, 2016 One Year Change Two Year Change $ % $ % SSNOI(1) Non-cash NOI attributable to . . . . . . . . . . . . . . . . . . $ 536,231 $ 566,188 $ 29,957 6% $ 575,764 $ 9,576 2%$ 39,533 7% same store properties(1) . . . . . 43,448 53,578 10,130 23% 44,215 (9,363)-17% 767 2% NOI attributable to non same store properties(2) . . . . . . . . . 447,455 556,040 108,585 24% 588,881 32,841 6% 141,426 32% NOI . . . . . . . . . . . . . . . . . . . . . . $1,027,134 $1,175,806 $148,672 14% $1,208,860 $33,054 3%$181,726 18% (1) Change is due to increases in cash and non-cash NOI (described below) related to 397 same store properties. (2) Change is primarily due to the acquisition of 144 properties and the conversion of 26 construction projects into revenue-generating properties subsequent to January 1, 2014. 59 Depreciation and amortization . . . . . . . . . . . . Transaction costs . . . . . . . . . . Loss (gain) on extinguishment . . . . . . . . . . . . . of debt, net Provision for loan losses . . . . . Impairment of assets . . . . . . . . Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a summary of our results of operations for the triple-net segment (dollars in thousands): Year Ended December 31, December 31, 2014 2015 One Year Change $ % Year Ended December 31, 2016 One Year Change $ % Two Year Change $ % Revenues: Rental income . . . . . . . . . . . . . $ 992,638 $1,094,827 $102,189 10% $1,112,325 $ 17,498 2% $119,687 12% Interest income . . . . . . . . . . . . Other income . . . . . . . . . . . . . 32,255 2,973 74,108 6,871 41,853 3,898 130% 131% 90,476 6,059 16,368 22% 58,221 181% (812) -12% 3,086 104% Property operating expenses . . . . 732 — (732) -100% — — n/a (732) -100% 1,027,866 1,175,806 147,940 14% 1,208,860 33,054 3% 180,994 18% Net operating income from continuing operations (NOI) . . . . . . . . . . . . . . . . . Other expenses: 1,027,134 1,175,806 148,672 14% 1,208,860 33,054 3% 181,726 18% Interest expense . . . . . . . . . . . 32,135 28,384 (3,751) -12% 21,370 (7,014) -25% (10,765) -33% Loss (gain) on derivatives, net . . . . . . . . . . . . . . . . . . . . (1,770) (58,427) (56,657) 3,201% 68 58,495 -100% 1,838 -104% 273,296 45,146 288,242 53,195 14,946 8,049 5% 18% 297,197 8,955 3% 23,901 9% 10,016 (43,179) -81% (35,130) -78% Other expenses . . . . . . . . . . . . 8,825 26,823 304% — (35,648) -100% (8,825) -100% 10,095 9,997 10,201% (9,232) -91% 765 781% — 2,220 n/a n/a 6,935 n/a 6,935 20,169 17,949 809% 20,169 n/a n/a 863 6,935 98 — — — 2,220 35,648 Income from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . . Income tax benefit (expense) . . . Income (loss) from 357,730 359,357 1,627 0% 356,618 (2,739) -1% (1,112) 0% 669,404 6,141 816,449 147,045 (4,244) (10,385) 22% n/a 852,242 35,793 4% 182,838 27% (1,087) 3,157 -74% (7,228) -118% unconsolidated entities . . . . . . 5,423 8,260 2,837 52% 9,767 1,507 18% 4,344 80% Income from continuing operations . . . . . . . . . . . . . . . . 680,968 820,465 139,497 20% 860,922 40,457 5% 179,954 26% Discontinued operations, net . . . 7,135 — (7,135) -100% — — n/a (7,135) -100% Gain (loss) on real estate dispositions, net . . . . . . . . . . . 146,205 86,261 (59,944) -41% 355,394 269,133 312% 209,189 143% Net income . . . . . . . . . . . . . . . . . 834,308 906,726 72,418 9% 1,216,316 309,590 34% 382,008 46% Less: Net income attributable to noncontrolling interests . . . . . 1,874 6,348 4,474 239% 1,221 (5,127) -81% (653) -35% Net income attributable to common stockholders . . . . . . . $ 832,434 $ 900,378 $ 67,944 8% $1,215,095 $314,717 35% $382,661 46% The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed triple-net properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is 60 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2016, we had no lease renewals but we had 26 leases with rental rate increasers ranging from 0.07% to 0.60% in our triple-net portfolio. The increase in interest income is attributable to higher loan volume in the current year, which includes first mortgage loans to Genesis Healthcare. The decrease in other income is due to the receipt of an early prepayment fee in 2015 related to a real estate loan receivable. During the year ended December 31, 2016, we completed two triple-net construction projects totaling $46,094,000 or $251,880 per bed/unit and one expansion project totaling $2,879,000. The following is a summary of triple-net construction projects pending as of December 31, 2016 (dollars in thousands): Location Raleigh, NC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Livingston, NJ . . . . . . . . . . . . . . . . . . . . . . . . . . . Edmond, OK . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lititz, PA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lancaster, PA . . . . . . . . . . . . . . . . . . . . . . . . . . . Piscataway, NJ . . . . . . . . . . . . . . . . . . . . . . . . . . Bracknell, England . . . . . . . . . . . . . . . . . . . . . . . Alexandria, VA . . . . . . . . . . . . . . . . . . . . . . . . . . Units/ Beds 225 120 142 145 80 80 124 64 116 Commitment Balance Est. Completion $ 95,700 53,439 27,300 28,500 15,200 15,875 40,800 15,573 60,156 $ 83,566 37,566 23,881 19,197 13,867 12,778 34,924 10,394 20,918 1Q17 1Q17 1Q17 1Q17 1Q17 1Q17 2Q17 2Q17 1Q18 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,096 $352,543 $257,091 Total interest expense represents secured debt interest expense and gains and losses on forward exchange contracts. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The following is a summary of our triple-net secured debt principal activity (dollars in thousands): Year Ended December 31, 2014 Year Ended December 31, 2015 Year Ended December 31, 2016 Beginning balance . . . . . Debt issued . . . . . . . . . . . Debt assumed . . . . . . . . . Debt extinguished . . . . . Foreign currency . . . . . . Principal payments . . . . . Amount $587,136 — 120,352 (22,970) (2,180) (11,569) Weighted Avg. Interest Rate 5.394% 0.000% 5.404% 6.235% 5.317% 5.564% Amount $ 670,769 — 44,142 (132,545) (15,633) (12,719) Weighted Avg. Interest Rate 5.337% 0.000% 5.046% 4.695% 5.315% 5.450% Amount $ 554,014 166,155 — (118,500) 3,157 (10,627) Ending balance . . . . . . . . $670,769 5.337% $ 554,014 5.488% $ 594,199 Monthly averages . . . . . . $596,941 5.381% $ 551,803 5.518% $ 497,213 Weighted Avg. Interest Rate 5.488% 2.205% 0.000% 5.562% 5.247% 5.682% 4.580% 5.414% In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature. This event resulted in $58,427,000 gain. During the fourth quarter of 2015, the cost basis of this investment exceeded the fair value. Management performed an assessment 61 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations to determine whether the decline in fair value was other than temporary and concluded that it was. As a result, we recognized an other than temporary impairment charge of $35,648,000 which is recorded in other expense. Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions of newly constructed properties. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly. Transaction costs are costs incurred with property acquisitions including due diligence costs, fees for legal and valuation services, the termination of pre-existing relationships, lease termination expenses and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt. Changes in gains on sales of properties are related to the volume of property sales and the sales prices. We recognized impairment losses on certain held-for-sale properties as the fair value less estimated costs to sell exceeded our carrying values. During the year ended December 31, 2016, we recorded a provision for loan loss related to the restructuring of two first mortgage loans. During the years ended December 31, 2014 and 2015, we did not record a provision for loan loss or record loan write-offs. The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed in “Critical Accounting Policies” and Note 6 to our consolidated financial statements. A portion of our triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner. Seniors Housing Operating The following is a summary of our NOI for the seniors housing operating segment (dollars in thousands): Year Ended One Year Change December 31, 2014 December 31, 2015 $ % Year Ended December 31, 2016 One Year Change Two Year Change $ % $ % SSNOI(1) . . . . . . . . . . . $625,732 Non-cash NOI $614,044 $(11,688) -2% $619,850 $ 5,806 1% $ (5,882) -1% attributable to same store properties . . . . NOI attributable to non same store properties(2) . . . . . . . (1,044) (1,003) 41 -4% (2,404) (1,401) 140% (1,360) 130% 6,575 88,221 81,646 1,242% 196,668 108,447 123% 190,093 2,891% NOI . . . . . . . . . . . . . . . $631,263 $701,262 $ 69,999 11% $814,114 $112,852 16% $182,851 29% (1) Relates to 278 same store properties. (2) Primarily due to the acquisition of 137 properties subsequent to January 1, 2014. 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a summary of our results of operations for the seniors housing operating segment (dollars in thousands): Revenues: Year Ended December 31, December 31, 2014 2015 One Year Change $ % Year Ended December 31, 2016 One Year Change $ % Two Year Change $ % Resident fees and services . . . . . . . . . . . $1,892,237 $2,158,031 $265,794 14% $2,504,731 $346,700 16% $612,494 Interest income . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . 2,119 3,215 4,180 6,060 2,061 2,845 97% 88% 4,180 17,085 — 0% 2,061 11,025 182% 13,870 431% 32% 97% Property operating expenses . . . . . . . . . . . 1,266,308 1,467,009 200,701 16% 1,711,882 244,873 17% 445,574 1,897,571 2,168,271 270,700 14% 2,525,996 357,725 16% 628,425 33% 35% Net operating income from continuing operations (NOI) . . . . . . . . . . . . . . . . 631,263 701,262 69,999 11% 814,114 112,852 16% 182,851 29% Other expenses: Interest expense . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . . . Depreciation and amortization . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . 64,130 275 418,199 16,880 383 — 1,437 70,388 6,258 10% 81,853 11,465 16% 17,723 28% — (275) -100% — — n/a (275) -100% 351,733 (66,466) -16% 415,429 63,696 18% (2,770) 54,966 38,086 226% 29,207 (25,759) -47% 12,327 -1% 73% (195) (578) -151% (88) 107 -55% (471) -123% — — — n/a 12,403 12,403 n/a 12,403 n/a (1,437) -100% — — n/a (1,437) -100% 501,304 476,892 (24,412) -5% 538,804 61,912 13% 37,500 7% (Loss) income from continuing operations before income from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . (Loss) income from unconsolidated 129,959 (3,047) 224,370 94,411 73% 275,310 50,940 23% 145,351 112% 986 4,033 -132% (3,762) (4,748) -482% (715) 23% entities . . . . . . . . . . . . . . . . . . . . . . . . . . (38,204) (32,672) 5,532 -14% (20,442) 12,230 -37% 17,762 -46% Net income (loss) . . . . . . . . . . . . . . . . . . . . 88,708 192,684 103,976 117% 251,106 58,422 30% 162,398 183% Less: Net income (loss) attributable to noncontrolling interests . . . . . . . . . . . . . (2,335) (1,438) 897 -38% 2,292 3,730 -259% 4,627 -198% Net income (loss) attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . $ 91,043 $ 194,122 $103,079 113% $ 248,814 $ 54,692 28% $157,771 173% Fluctuations in revenues and property operating expenses are primarily a result of acquisitions and the movement of U.S. and foreign currency exchange rates. The increase in other income for the year ended December 31, 2016 is primarily a result of insurance proceeds received relating to a property as well as a bargain purchase gain recognized in conjunction with a single property acquisition. The fluctuations in depreciation and amortization are due to the net impact of acquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. Losses from unconsolidated entities are primarily attributable to depreciation and amortization of short-lived intangible assets related to our investments in unconsolidated joint ventures with Chartwell in 2012, Sunrise in 2013 and Senior Resource Group in 2014. 63 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations During the year ended December 31, 2016, we completed one seniors housing operating construction project representing $18,979,000 or $210,878 per unit plus one expansion project representing $8,484,000. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of December 31, 2016 (dollars in thousands): Location Units/Beds Commitment Balance Est. Completion Camberley, England . . . . . . . . . . . . . . . . . . . Chertsey, England . . . . . . . . . . . . . . . . . . . . Bushey, England . . . . . . . . . . . . . . . . . . . . . 12 93 95 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 $ 3,487 38,160 48,861 $90,508 $ 3,436 18,727 16,949 39,112 1Q17 1Q18 2Q18 New York, NY . . . . . . . . . . . . . . . . . . . . . . . Project in planning stage 126,781 $165,893 Interest expense represents secured debt interest expense. Please refer to Note 10 to our consolidated financial statements for additional information. The following is a summary of our seniors housing operating property secured debt principal activity (dollars in thousands): Year Ended December 31, 2014 Year Ended December 31, 2015 Year Ended December 31, 2016 Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Beginning balance . . . . . . . . $1,714,714 109,503 Debt issued . . . . . . . . . . . . . 18,484 Debt assumed . . . . . . . . . . . (114,793) Debt extinguished . . . . . . . . (39,379) Foreign currency . . . . . . . . . (33,998) Principal payments . . . . . . . 4.622% $1,654,531 228,685 3.374% 842,316 4.359% (285,599) 3.626% (110,691) 3.727% (38,690) 4.296% 4.422% $2,290,552 293,860 2.776% 3.420% 60,898 (159,498) 4.188% 26,549 3.625% (49,112) 4.126% 3.958% 2.895% 4.301% 3.656% 3.483% 3.888% Ending balance . . . . . . . . . . $1,654,531 4.422% $2,290,552 3.958% $2,463,249 3.936% Monthly averages . . . . . . . . $1,657,416 4.515% $1,894,609 4.261% $2,391,706 3.926% The fluctuations in gains/losses on debt extinguishments is primarily attributable the volume of extinguishments and terms of the related secured debt. During the year ended December 31, 2016, we recorded impairment charges totaling $12,403,000 relating to two properties. Transaction costs represent costs incurred with property acquisitions (including due diligence costs, fees for legal and valuation services, and termination of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The majority of our seniors housing operating properties are formed through partnership interests. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss related to those partnerships where we are the controlling partner. 64 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Outpatient Medical The following is a summary of our NOI for the outpatient medical segment (dollars in thousands): Year Ended One Year December 31, December 31, Change Year Ended December 31, One Year Change Two Year Change 2014 2015 $ % 2016 $ % $ % SSNOI(1) . . . . . . . . . . . . . . . . . $242,195 Non-cash NOI attributable to same store properties(1) . . . . 8,015 NOI attributable to non same $245,563 $ 3,368 1% $250,134 $ 4,571 2% $ 7,939 3% 5,186 (2,829) -35% 2,440 (2,746) -53% (5,575) -70% store properties(2) . . . . . . . . 30,904 108,661 77,757 252% 127,690 19,029 18% 96,786 313% NOI . . . . . . . . . . . . . . . . . . . . . $281,114 $359,410 $78,296 28% $380,264 $20,854 6% $99,150 35% (1) Due to increases in cash and non-cash NOI (described below) related to 176 same store properties. (2) Primarily due to the acquisition of 54 properties and conversions of construction projects into 17 revenue-generating properties subsequent to January 1, 2013. 65 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a summary of our results of operations for the outpatient medical segment (dollars in thousands): Revenues: Year Ended December 31, December 31, 2014 2015 One Year Change $ % Year Ended December 31, 2016 One Year Change $ % Two Year Change $ % Rental income . . . . . . . . . . . . . . . . . $413,129 $504,121 $ 90,992 22% $536,490 $ 32,369 6% $123,361 Interest income . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . Net operating income from 3,293 1,010 417,432 136,318 5,853 4,684 514,658 155,248 2,560 3,674 97,226 18,930 78% 364% 3,307 5,568 (2,546) -43% 14 884 19% 4,558 451% 23% 545,365 30,707 6% 127,933 14% 165,101 9,853 6% 28,783 31% 21% 30% 0% continuing operations (NOI) . . . . 281,114 359,410 78,296 28% 380,264 20,854 6% 99,150 35% Other expenses: Interest expense . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . Transaction costs . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . Impairment of assets . . . . . . . . . . . . 31,050 152,635 7,512 405 — — 27,542 186,265 2,765 (3,508) -11% 19,087 (8,455) -31% (11,963) -39% 33,630 22% 188,616 2,351 1% 35,981 24% (4,747) -63% 3,687 922 33% (3,825) -51% — — — (405) -100% — — n/a n/a — 3,280 4,635 — n/a (405) -100% 3,280 4,635 n/a n/a 3,280 4,635 n/a n/a 191,602 216,572 24,970 13% 219,305 2,733 1% 27,703 14% Income from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . Income (loss) from unconsolidated 89,512 (1,827) 142,838 245 53,326 2,072 60% 160,959 18,121 13% 71,447 80% n/a (511) (756) n/a 1,316 -72% entities . . . . . . . . . . . . . . . . . . . . . . . 5,355 2,908 (2,447) -46% 318 (2,590) -89% (5,037) -94% Income from continuing operations . . . 93,040 145,991 52,951 57% 160,766 14,775 10% 67,726 73% Gain (loss) on real estate dispositions, . . . . . . . . . . . . . . . . . . . . . . . . . . net 906 194,126 193,220 21,327% (1,228) (195,354) n/a (2,134) n/a Net income (loss) . . . . . . . . . . . . . . . . . 93,946 340,117 246,171 262% 159,538 (180,579) -53% 65,592 70% Less: Net income (loss) attributable to noncontrolling interests . . . . . . . . . . Net income (loss) attributable to 608 (110) (718) n/a 768 878 n/a 160 26% common stockholders . . . . . . . . . . . $ 93,338 $340,227 $246,889 265% $158,770 $(181,457) -53% $ 65,432 70% The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed outpatient medical properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Revenue from real property that is sold would offset revenue increases and, to the extent that revenues from sold properties exceed those from new acquisitions, we would experience decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2016, our consolidated outpatient medical portfolio signed 81,930 square feet of new leases and 305,176 square feet of renewals. The weighted-average term of these leases was eight years, with a rate of $35.61 per square foot and tenant improvement and lease commission costs of 66 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations $18.23 per square foot. Substantially all of these leases during the referenced quarter contain an annual fixed or contingent escalation rent structure ranging from the change in CPI to 5%. The increase in other income is primarily attributable to the acquisition of a controlling interest in a portfolio of properties that were historically reported as unconsolidated property investments, and subsequent adjustments made to certain contingent receivables. During the year ended December 31, 2016, we completed five outpatient medical construction projects representing $108,001,000 or $304 per square foot. The following is a summary of outpatient medical construction projects pending as of December 31, 2016 (dollars in thousands): Location Square Feet Commitment Balance Est. Completion Wausau, WI . . . . . . . . . . . . . . . . . . . . . . . . . . Castle Rock, CO . . . . . . . . . . . . . . . . . . . . . . Timmonium, MD . . . . . . . . . . . . . . . . . . . . . . Howell, MI . . . . . . . . . . . . . . . . . . . . . . . . . . . Brooklyn, NY . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,883 56,822 46,000 56,211 140,955 343,871 $ 14,100 13,148 20,996 15,509 103,624 $167,377 $13,125 7,290 10,717 7,174 39,867 $78,173 1Q17 1Q17 2Q17 2Q17 1Q18 Total interest expense represents secured debt interest expense. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands): Year Ended December 31, 2014 Year Ended December 31, 2015 Year Ended December 31, 2016 Beginning balance . . . . . Debt assumed . . . . . . . . . Debt extinguished . . . . . Principal payments . . . . . Amount $ 700,427 66,113 (141,796) (15,476) Weighted Avg. Interest Rate 5.999% 3.670% 5.567% 5.797% Amount $609,268 120,959 (88,182) (14,356) Weighted Avg. Interest Rate 5.838% 2.113% 5.257% 5.975% Amount $ 627,689 — (210,115) (13,495) Ending balance . . . . . . . . $ 609,268 5.838% $627,689 5.177% $ 404,079 Weighted Avg. Interest Rate 5.177% 0.000% 5.970% 6.552% 4.846% Monthly averages . . . . . . $ 626,797 5.928% $613,155 5.434% $ 536,774 5.106% The increases in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions of new outpatient medical facilities for which we incur certain property operating expenses. Transaction costs represent costs incurred with property acquisitions including due diligence costs, fees for legal and valuation services, termination of pre-existing relationships, a lease termination expense and other similar costs. During the year ended December 31, 2016, we recorded a provision for loan loss related to our critical accounting estimate for the allowance for loan losses discussed in “Critical Accounting Policies” and Note 6 to our consolidated financial statements. In addition, we recognized impairment losses on certain held-for-sale properties as the fair value less estimated costs to sell exceeded our carrying values. Income from unconsolidated entities represents our share of net income or losses related to the periods for which we held a joint venture investment with Forest City Enterprises and certain unconsolidated property investments. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices. A portion of our outpatient medical properties were formed through partnerships. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss relating to those partnerships where we are the controlling partner. 67 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Non-Segment/Corporate The following is a summary of our results of operations for the non-segment/corporate activities (dollars in thousands): Revenues: Year Ended One Year Year Ended One Year Two Year December 31, December 31, Change December 31, Change Change 2014 2015 $ % 2016 $ % $ % Other income . . . . . . . . . . . . . . . . . . . . $ 677 $ 1,091 $ 414 61% $ 939 $ (152)-14%$ 262 39% Expenses: Interest expense . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . General and administrative . . . . . . . . . Loss (gain) on extinguishments of debt, net . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . 353,724 — 142,943 365,855 — 147,416 12,131 — n/a 3% 399,035 (2,516) 3% 155,241 33,180 (2,516) n/a 7,825 9% 45,311 13% (2,516) n/a 5% 12,298 9% 4,473 8,672 — 24,777 10,583 16,105 186% n/a 10,583 16,439 11,998 (8,338)-34% 7,767 90% 1,415 13% 11,998 n/a 505,339 548,631 43,292 9% 580,197 31,566 6% 74,858 15% Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . (504,662) — (547,540) (3,438) (42,878) (3,438) 8% (579,258) 24,488 n/a (31,718) 6% (74,596)15% 24,488 n/a 27,926 n/a Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . (504,662) 65,408 (550,978) 65,406 (46,316) (2) 9% (554,770) 65,406 0% (3,792) 1% (50,108)10% (2) 0% — 0% Net loss attributable to common stockholders . . . . . . . . . . . . . . . . . . . . $(570,070) $(616,384) $(46,314) 8% $(620,176) $ (3,792) 1%$(50,106) 9% The following is a summary of our non-segment/corporate interest expense (dollars in thousands): Year Ended December 31, December 31, 2014 2015 One Year Change $ % Year Ended December 31, 2016 One Year Change $ % Two Year Change $ % Senior unsecured notes . . . . . $329,352 Secured debt . . . . . . . . . . . . . 460 Primary unsecured credit facility . . . . . . . . . . . . . . . . Loan expense . . . . . . . . . . . . 8,914 14,998 $341,265 $11,913 357 (103) -22% 4% $368,775 310 $27,510 8% $39,423 12% (47) -13% (150) -33% 10,812 13,421 1,898 21% 16,811 (1,577) -11% 13,139 5,999 55% 7,897 89% -2% (1,859) -12% (282) Totals . . . . . . . . . . . . . . . . . . $353,724 $365,855 $12,131 3% $399,035 $ 33,180 9% $45,311 13% The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments. Please refer to Note 10 to our consolidated financial statements for additional information. The increases in interest expense are attributed to the £500,000,000 Sterling-denominated senior unsecured notes issued in November 2014, the $300,000,000 Canadian-denominated senior unsecured notes issued in November 2015 and the $700,000,000 of 4.25% senior unsecured notes issued in March 2016. Loan expense represents the amortization of deferred loan costs incurred in connection with the issuance and amendments of debt. Loan expense changes are due to amortization of charges for costs incurred in connection with senior unsecured note issuances. The change in interest expense on our primary unsecured credit facility is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 9 of our consolidated financial statements for additional information regarding our primary unsecured credit facility. General and administrative expenses for 2014 included $19,688,000 of CEO transition costs. Excluding these costs, general and administrative expenses as a percentage of consolidated revenues for the years ended 68 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations December 31, 2016, 2015 and 2014 were 3.63%, 3.82% and 3.69%, respectively. The loss on extinguishment of debt in 2015 is primarily due to the early extinguishment of the 2016 senior unsecured notes. The loss on extinguishment of debt in 2016 is due to the early extinguishment of the 2017 senior unsecured notes. Other expenses in 2016 and 2015 included costs associated with the departure of executive officers. Other expenses in 2015 also included costs associated with the termination of our investment in a strategic outpatient medical partnership. Other Non-GAAP Financial Measures We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measurement. However, we consider funds from operations attributable to common stockholders (“FFO”), net operating income from continuing operations (“NOI”), same store NOI (“SSNOI”), EBITDA and Adjusted EBITDA to be useful supplemental measures of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (“NAREIT”) created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means net income attributable to common stockholders, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests. NOI is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our seniors housing operating and medical facility properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations or transaction costs. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. SSNOI is used to evaluate the operating performance of our properties under a consistent population which eliminates changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the reporting period subsequent to January 1, 2015. Land parcels, loans and sub-leases as well as any properties acquired, developed/ redeveloped, transitioned, sold or classified as held for sale during that period are excluded from the same store amounts. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties. EBITDA stands for earnings before interest, taxes, depreciation and amortization. We believe that EBITDA, along with net income and cash flow provided from operating activities, is an important supplemental measure because it provides additional information to assess and evaluate the performance of our operations. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends. A covenant in our primary unsecured credit facility contains a financial ratio based on a definition of EBITDA that is specific to that agreement. Failure to satisfy these covenants could result in an event of default that could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these debt agreements and the financial covenants, we have disclosed Adjusted EBITDA, which 69 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations represents EBITDA as defined above and adjusted for items per our covenant. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge coverage ratio of at least 1.50 times. Other than Adjusted EBITDA, our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. Adjusted EBITDA is used to demonstrate our compliance with a comparable financial covenant in our primary unsecured credit facility and is not being presented for use by investors for any other purpose. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies. The table below reflects the reconciliation of FFO to net income attributable to common stockholders, the most directly comparable U.S. GAAP measure, for the periods presented. The provisions for depreciation and amortization include provisions for depreciation and amortization from discontinued operations. Noncontrolling interest and unconsolidated entity amounts represent adjustments to reflect our share of depreciation and amortization. Amounts are in thousands except for per share data. Year Ended December 31, 2014 2015 2016 FFO Reconciliation: Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on sales of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds from operations attributable to common stockholders . . . . . . . . . . . . . . . . . . . Average common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 446,745 844,130 — (153,522) (37,852) 74,580 $ 818,344 826,240 2,220 (280,387) (39,271) 82,494 $1,012,397 901,242 37,207 (364,046) (71,527) 67,667 $1,174,081 $1,409,640 $1,582,940 306,272 307,747 348,240 349,424 358,275 360,227 Per share data: Net income attributable to common stockholders Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Funds from operations attributable to common stockholders Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 1.46 1.45 3.83 3.82 $ $ 2.35 2.34 4.05 4.03 2.83 2.81 4.42 4.39 70 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The table below reflects the reconciliation of Adjusted EBITDA to net the most directly comparable U.S. GAAP measure, for the periods presented. Interest expense and the provisions for depreciation and amortization include discontinued operations. Dollars are in thousands. income, Adjusted EBITDA Reconciliation: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense (benefit), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss/impairment (gain) on sales of properties, net Loss (gain) on derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CEO transition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2014 2015 2016 $ 512,300 481,196 (1,267) 844,130 $ 888,549 492,169 6,451 826,240 $1,082,070 521,345 (19,128) 901,242 1,836,359 32,075 69,538 — 9,558 (153,522) (1,495) 10,465 10,262 — 2,213,409 30,844 110,926 — 34,677 (278,167) (58,427) — 40,636 (2,144) 2,485,529 28,869 42,910 10,215 17,214 (326,839) (2,448) — 7,721 (16,664) Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,813,240 $2,091,754 $2,246,507 Adjusted Interest Coverage Ratio: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 481,196 7,150 (2,427) $ 492,169 8,670 (2,586) $ 521,345 16,943 (1,681) Total interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485,919 $1,813,240 498,253 $2,091,754 536,607 $2,246,507 Adjusted interest coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.73x 4.20x 4.19x Adjusted Fixed Charge Coverage Ratio: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt principal payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 481,196 7,150 (2,427) 62,280 65,408 $ 492,169 8,670 (2,586) 67,064 65,406 $ 521,345 16,943 (1,681) 74,466 65,406 Total fixed charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613,607 $1,813,240 630,723 $2,091,754 676,479 $2,246,507 Adjusted fixed charge coverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.96x 3.32x 3.32x 71 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following tables reflect the reconciliation of NOI and SSNOI to net operating income from continuing operations, the most directly comparable U.S. GAAP measure, for the periods presented. Dollar amounts are in thousands. Year Ended December 31, 2014 2015 2016 NOI Reconciliation: Total revenues: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-segment/corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,027,866 1,897,571 417,432 677 $1,175,806 2,168,271 514,658 1,091 $1,208,860 2,525,996 545,365 939 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,343,546 3,859,826 4,281,160 Property operating expenses: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical 732 1,266,308 136,318 — 1,467,009 155,248 — 1,711,882 165,101 Total property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,403,358 1,622,257 1,876,983 Net operating income: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-segment/corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,027,134 631,263 281,114 677 1,175,806 701,262 359,410 1,091 1,208,860 814,114 380,264 939 Net operating income from continuing operations . . . . . . . . . . . . . . $1,940,188 $2,237,569 $2,404,177 72 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Same Store NOI Reconciliation: Net operating income from continuing operations: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical $1,027,134 631,263 281,114 $1,175,806 701,262 359,410 $1,208,860 814,114 380,264 Year Ended December 31, 2014 2015 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,939,511 2,236,478 2,403,238 Total Adjustments: Triple-net: Non-cash NOI on same store properties . . . . . . . . . . . . . . . . . . . . . . NOI attributable to non same store properties . . . . . . . . . . . . . . . . . (43,448) (447,455) (53,578) (556,040) (44,215) (588,881) Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (490,903) (609,618) (633,096) Seniors housing operating: Non-cash NOI on same store properties . . . . . . . . . . . . . . . . . . . . . . NOI attributable to non same store properties . . . . . . . . . . . . . . . . . 1,044 (6,575) 1,003 (88,221) 2,404 (196,668) Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,531) (87,218) (194,264) Outpatient medical: Non-cash NOI on same store properties . . . . . . . . . . . . . . . . . . . . . . NOI attributable to non same store properties . . . . . . . . . . . . . . . . . (8,015) (30,904) (5,186) (108,661) (2,440) (127,690) Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,919) (113,847) (130,130) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (535,353) (810,683) (957,490) Same store net operating income: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical 536,231 625,732 242,195 566,188 614,044 245,563 575,764 619,850 250,134 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,404,158 $1,425,795 $1,445,748 Same Store NOI Property Reconciliation: Total properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disposals/Held-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Segment transitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Same store properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313 (335) (44) (72) (2) (9) 851 (1) Includes eight land parcels and one loan. 73 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions. Management considers accounting estimates or assumptions critical if: • • the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and the impact of the estimates and assumptions on financial condition or operating performance is material. Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the disclosure presented below relating to them. Management believes the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to our consolidated financial statements for further information on significant accounting policies that impact us and for the impact of new accounting standards, including accounting pronouncements that were issued but not yet adopted by us. The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate: Nature of Critical Accounting Estimate Assumptions/ Approach Used Principles of Consolidation The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries and the accounts of joint venture entities in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. In addition, we consolidate those entities deemed to be variable interest entities (VIEs) in which we are determined to be the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation. Income Taxes As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. 74 We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment to finance that entity’s activities without at risk is insufficient additional subordinated financial support. We make judgments with respect to our level of influence or control of an entity and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity’s economic performance, our form of ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability and the rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the variable interest entity, our assumptions may be different and may result in the identification of a different primary beneficiary. Our determinations are based on interpretation of tax laws, and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by federal, state and international tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in-gain recognized related to prior-tax-free acquisitions of C corporations and (iv) changes in tax laws. Adjustments required in any given period are included in income. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Nature of Critical Accounting Estimate Assumptions/ Approach Used Business Combinations We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the relative fair value of each component. The most significant components of our allocations are typically the allocation of fair value to the buildings as-if-vacant, land and in-place leases. In the case of the fair value of buildings and the allocation of value to land and other intangibles, our estimates of the values of the amount of these components will affect depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions and costs to execute similar leases. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Amortization periods for intangibles are based on the remaining life of the lease. The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments and principal. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying property. Any loans with collectability concerns are subjected to a projected payoff valuation. The valuation is based on the expected future cash flows and/or the estimated fair value of the underlying collateral. The valuation is compared to the outstanding balance to determine the reserve needed for each loan. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. the fair value of The valuation of derivative instruments requires us to make estimates and judgments the that affect instruments. Fair values of our forward exchange contracts are estimated using pricing models that consider forward currency spot rates, forward trade rates and discount rates. Fair values of our interest rate swaps are estimated by utilizing pricing models that consider forward yield curves, discount rates and counterparty credit risk. Such amounts and their recognition are subject to significant estimates which may change in the future. Real property developed by us is recorded at cost, including the capitalization of construction period interest. The cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their respective fair values. Tangible assets primarily consist of land, buildings and improvements. The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value of in-place leases. The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values specific characteristics of each tenant’s lease and the Company’s overall relationship with that respective tenant. on management’s evaluation based the of Allowance for Loan Losses We maintain an allowance for loan losses in accordance with U.S. GAAP. The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement or if it has been modified in a troubled debt restructuring. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status. Fair Value of Derivative Instruments The valuation of derivative instruments is accounted for in accordance with U.S. GAAP, which requires companies to record derivatives at fair market value on the balance sheet as assets or liabilities. 75 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Nature of Critical Accounting Estimate Assumptions/ Approach Used Revenue Recognition Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. If the collectability of revenue is determined incorrectly, the amount and timing of our reported revenue could be significantly affected. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain fixed and/or contingent escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over 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. We recognize resident fees and services, other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice. lease period, the initial subject Impairment of Long-Lived Assets impairment for potential long-lived assets We review our in accordance with U.S. GAAP. An impairment charge must be is not recognized when the carrying value of a long-lived asset recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value. We evaluate the collectability of our revenues and related receivables on an on-going basis. We evaluate collectability based on assumptions and other considerations including, but not limited to, the certainty of payment, payment history, the financial strength of the investment’s underlying operations as measured by cash flows and payment coverages, the underlying collateral and guaranties and current economic conditions. the value of If our evaluation indicates that collectability is not reasonably assured, we may place an investment on non-accrual or reserve against all or a portion of current income as an offset to revenue. The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely use of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held. life and changes in the market Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates. For additional information, see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Notes 11 and 16 to our consolidated financial statements. We historically borrow on our primary unsecured credit facility to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long- term fixed rate debt to repay the borrowings under our primary unsecured credit facility. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited. 76 A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands): December 31, 2016 December 31, 2015 Principal balance Fair value change Principal balance Fair value change Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,568,832 2,489,276 $(521,203) $ 7,965,107 2,757,123 (73,944) $(519,901) (91,376) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,058,108 $(595,147) $10,722,230 $(611,277) Our variable rate debt, including our primary unsecured credit facility, is reflected at fair value. At December 31, 2016, we had $2,311,996,000 outstanding related to our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $23,120,000. At December 31, 2015, we had $2,236,733,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $22,367,000. We are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of the Canadian Dollar or Pounds Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in Canada and the United Kingdom. Based solely on our results for the year ended December 31, 2016, including the impact of existing hedging if these exchange rates were to increase or decrease by 10%, our net income from these arrangements, investments would increase or decrease, as applicable, by less than $2,000,000. We will continue to mitigate these underlying foreign currency exposures with non-U.S. denominated borrowings and gains and losses on derivative contracts. If we increase our international presence through investments in, or acquisitions or development of, seniors housing and health care properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. Dollars, Canadian Dollars or Pounds Sterling. To illustrate the impact of changes in foreign currency markets, we performed a sensitivity analysis on our derivative portfolio whereby we modeled the change in net present values arising from a hypothetical 1% increase in foreign currency exchange rates to determine the instruments’ change in fair value. The following table summarizes the results of the analysis performed, excluding cross currency hedge activity (dollars in thousands): December 31, 2016 December 31, 2015 Carrying value Fair value change Carrying value Fair value change Foreign currency exchange contracts . . . . . . . . . . . . . . . . . . . . . Debt designated as hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,962 1,481,591 $ 722 13,000 $ 117,452 1,728,979 $ 1,915 13,000 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,569,553 $13,722 $1,846,431 $14,915 77 Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Welltower Inc. We have audited the accompanying consolidated balance sheets of Welltower Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Welltower Inc. and subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Welltower Inc.’s internal control over financial reporting as of December 31, 2016, 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 22, 2017 expressed an unqualified opinion thereon. Toledo, Ohio February 22, 2017 /s/ ERNST & YOUNG LLP 78 CONSOLIDATED BALANCE SHEETS WELLTOWER INC. AND SUBSIDIARIES Assets Real estate investments: Real property owned: Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real property held for sale, net of accumulated depreciation . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross real property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . Net real property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less allowance for losses on loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . Net real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net real estate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets: Investments in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Straight-line receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and equity Liabilities: Borrowings under primary unsecured credit facility . . . . . . . . . . . . . . . . . . . . . Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity: Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . Other equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Welltower Inc. stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes 79 December 31, 2016 December 31, 2015 (In thousands) $ 2,591,071 24,496,153 1,402,884 1,044,859 506,091 30,041,058 (4,093,494) 25,947,564 622,628 (6,563) 616,065 26,563,629 457,138 68,321 419,378 187,842 342,578 826,298 2,301,555 $28,865,184 $ 2,563,445 25,522,542 1,350,585 169,950 258,968 29,865,490 (3,796,297) 26,069,193 819,492 — 819,492 26,888,685 542,281 68,321 360,908 61,782 395,562 706,306 2,135,160 $29,023,845 $ 645,000 8,161,619 3,477,699 73,927 827,034 13,185,279 398,433 $ 835,000 8,548,055 3,509,142 75,489 697,191 13,664,877 183,083 1,006,250 363,071 16,999,691 (54,741) 4,803,575 (8,144,981) (169,531) 3,059 14,806,393 475,079 15,281,472 $28,865,184 1,006,250 354,811 16,478,300 (44,372) 3,725,772 (6,846,056) (88,243) 4,098 14,590,560 585,325 15,175,885 $29,023,845 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME WELLTOWER INC. AND SUBSIDIARIES (In thousands, except per share data) Year Ended December 31, 2016 2015 2014 Revenues: Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resident fees and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,648,815 2,504,731 97,963 29,651 $1,598,948 2,158,031 84,141 18,706 $1,405,767 1,892,237 37,667 7,875 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,281,160 3,859,826 3,343,546 Expenses: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521,345 1,876,983 901,242 155,241 42,910 (2,448) 17,214 10,215 37,207 11,998 492,169 1,622,257 826,240 147,416 110,926 (58,427) 34,677 — 2,220 46,231 481,039 1,403,358 844,130 142,943 69,538 (1,495) 9,558 — — 10,262 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,571,907 3,223,709 2,959,333 Income from continuing operations before income taxes and income from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax (expense) benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations: Gain (loss) on sales of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain (loss) on real estate dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Net income (loss) attributable to noncontrolling interests(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 709,253 19,128 (10,357) 636,117 (6,451) (21,504) 384,213 1,267 (27,426) 718,024 608,162 358,054 — — — 364,046 1,082,070 65,406 4,267 — — — 280,387 888,549 65,406 4,799 6,411 724 7,135 147,111 512,300 65,408 147 Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,012,397 $ 818,344 $ 446,745 Average number of common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,275 360,227 348,240 349,424 306,272 307,747 Earnings per share: Basic: Income from continuing operations attributable to common stockholders, including real estate dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted: Income from continuing operations attributable to common stockholders, including real estate dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ 2.83 — 2.83 2.81 — 2.81 $ $ $ $ 2.35 — 2.35 2.34 — 2.34 $ $ $ $ 1.44 0.02 1.46 1.43 0.02 1.45 * Amounts may not sum due to rounding (1) Includes amounts attributable to redeemable noncontrolling interests See accompanying notes 80 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) WELLTOWER INC. AND SUBSIDIARIES (In thousands) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss): Unrecognized gain/(loss) on equity investments . . . . . . . . . . . . . . . . . . . . Unrecognized gain/(loss) on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . Unrecognized actuarial gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2016 2015 2014 $1,082,070 $888,549 $512,300 5,120 1,414 190 (85,557) — (766) 246 (46,679) 389 4,409 (137) (71,964) Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78,833) (47,199) (67,303) Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Total comprehensive income (loss) attributable to noncontrolling 1,003,237 841,350 444,997 interests(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,722 (31,166) (14,678) Total comprehensive income attributable to stockholders . . . . . . . . . . . . . . . $ 996,515 $872,516 $459,675 (1) Includes amounts attributable to redeemable noncontrolling interests. See accompanying notes 81 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 Other Equity Noncontrolling Interests Total Balances at December 31, 2013 . . . . . . . . . . . . $1,017,361 $289,461 $12,418,520 $(21,263) $2,329,869 $(4,600,854) $ (24,531) $ 6,020 $ 341,748 $11,756,331 Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income: Total comprehensive income . . . . . . . . . . . . . . . Net change in noncontrolling interests . . . . . . . Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures . . . . . . . . . (17,653) 337 22,710 (13,978) 512,153 (52,478) Net proceeds from sale of common stock . . . . . 38,546 2,305,322 Equity component of convertible debt . . . . . . . Conversion of preferred stock . . . . . . . . . . . . . . (11,111) 258 233 935 10,878 Option compensation expense . . . . . . . . . . . . . . Cash dividends paid: Common stock cash dividends . . . . . . . . . . . Preferred stock cash dividends . . . . . . . . . . . (969,661) (65,408) (342) (14,825) 511,811 (67,303) 444,508 (28,685) (46,338) 7,644 2,343,868 1,193 — 912 (969,661) (65,408) (1,425) 912 Balances at December 31, 2014 . . . . . . . . . . . . 1,006,250 328,835 14,740,712 (35,241) 2,842,022 (5,635,923) (77,009) 5,507 297,896 13,473,049 Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income: Total comprehensive income . . . . . . . . . . . . . . . Net change in noncontrolling interests . . . . . . . Amounts related to issuance of common stock incentive plans, net of forfeitures . . . . . . . . . Net proceeds from sale of common stock . . . . . Equity component of convertible debt . . . . . . . Option compensation expense . . . . . . . . . . . . . . Cash dividends paid: Common stock cash dividends . . . . . . . . . . . Preferred stock cash dividends . . . . . . . . . . . 883,750 (11,234) (23,077) 126 25,053 (9,131) 24,520 1,730,181 1,330 5,431 (1,144,727) (65,406) 4,878 (35,965) 888,628 (47,199) 841,429 318,516 295,439 13,941 1,754,701 6,761 698 (1,144,727) (65,406) (2,107) 698 Balances at December 31, 2015 . . . . . . . . . . . . 1,006,250 354,811 16,478,300 (44,372) 3,725,772 (6,846,056) (88,243) 4,098 585,325 15,175,885 Comprehensive income: Net income . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income: Total comprehensive income . . . . . . . . . . . . . . . Net change in noncontrolling interests . . . . . . . Amounts related to issuance of common stock from dividend reinvestment and stock incentive plans, net of forfeitures . . . . . . . . . Net proceeds from sale of common stock . . . . . Option compensation expense . . . . . . . . . . . . . . Cash dividends paid: Common stock cash dividends . . . . . . . . . Preferred stock cash dividends . . . . . . . . . 1,077,803 (81,288) (51,478) 839 7,421 46,938 (10,369) 525,931 (1,233,519) (65,406) 9,277 2,455 1,087,080 (78,833) 1,008,247 (121,978) (173,456) (1,305) 266 36,103 533,352 266 (1,233,519) (65,406) Balances at December 31, 2016 . . . . . . . . . . . . $1,006,250 $363,071 $16,999,691 $(54,741) $4,803,575 $(8,144,981) $(169,531) $ 3,059 $ 475,079 $15,281,472 See accompanying notes 82 CONSOLIDATED STATEMENTS OF CASH FLOWS WELLTOWER INC. AND SUBSIDIARIES (In thousands) Operating activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided from (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (income) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rental income in excess of cash received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization related to above (below) market leases, net . . . . . . . . . . . . . . . . . . . . . Loss (gain) on sales of properties, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions by unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (decrease) in accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . Decrease (increase) in receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided from (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing activities Cash disbursed for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash disbursed for capital improvements to existing properties . . . . . . . . . . . . . . . . . . . Cash disbursed for construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investments, net of payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal collected on real estate loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions to unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions by unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from (payments on) derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided from (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financing activities Net increase (decrease) under unsecured credit facilities . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments to extinguish senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net proceeds from the issuance of secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments on secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net proceeds from the issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in deferred loan expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions by noncontrolling interests(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions of noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash distributions to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2016 2015 2014 $ 1,082,070 $ 888,549 $ 512,300 901,242 8,822 10,215 37,207 28,869 (2,448) 17,214 10,357 (83,233) 322 (364,046) (4,853) 1,065 3,929 (18,037) 826,240 4,991 — 2,220 30,844 (58,427) 34,677 21,504 (115,756) 4,018 (280,387) 31,979 637 (18,099) 478 844,130 6,971 — — 32,075 (1,495) 9,558 27,426 (74,552) 739 (153,522) — 9,060 (48,381) (25,639) 1,628,695 1,373,468 1,138,670 (2,145,590) (219,146) (403,131) (16,943) (129,884) 4,760 249,552 (101,415) 119,723 108,347 (125,844) 2,350,068 (3,364,891) (187,752) (244,561) (8,670) (598,722) (141,994) 131,830 (160,323) 130,880 106,360 29,719 823,964 (2,210,600) (132,780) (197,881) (7,150) (202,207) (100,033) 105,496 (353,496) 57,183 10,269 (6,072) 911,065 (309,503) (3,484,160) (2,126,206) (190,000) 693,560 (865,863) 460,015 (563,759) 534,194 (22,196) 148,666 (134,578) — (1,298,925) (1,562) 835,000 1,451,434 (558,830) 228,685 (573,390) 1,755,722 (11,513) 173,018 (50,877) (5,663) (1,210,133) (27,004) (130,000) 773,992 (365,188) 109,503 (341,839) 2,343,868 (16,782) 9,962 (43,691) (1,175) (1,035,069) (409) Net cash provided from (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,240,448) 2,006,449 1,303,172 Effect of foreign currency translation on cash and cash equivalents . . . . . . . . . . . . . . . . . Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplemental cash flow information: Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,274) 58,470 360,908 419,378 541,545 8,011 (8,575) (112,818) 473,726 360,908 492,771 12,214 $ $ $ $ (690) 314,946 158,780 473,726 504,165 18,548 $ $ (1) Includes amounts attributable to redeemable noncontrolling interests. See accompanying notes. 83 WELLTOWER INC. 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. WelltowerTM, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Founded in 1970, we were the first REIT to invest exclusively in health care facilities. 2. Accounting Policies and Related Matters Principles of Consolidation The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture (“JV”) entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation. At inception of JV transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We consolidate investments in VIEs when we are determined to be the primary beneficiary. Accounting Standards Codification Topic 810, Consolidations (“ASC 810”), requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated on a continuous basis. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most that entity’s economic performance. For investments in JVs, GAAP may preclude significantly impact 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. Use of Estimates The preparation of the financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition Revenue is recorded in accordance with U.S. GAAP, which requires that revenue be recognized after four basic criteria are met. These four criteria include persuasive evidence of an arrangement, the rendering of service, fixed and determinable income and reasonably assured collectability. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Leases in our outpatient medical portfolio typically include some form of operating expense reimbursement by the tenant. Certain payments made to operators are treated as lease incentives and amortized as a reduction of revenue over the lease term. We recognize resident fees and services, 84 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice. Cash and Cash Equivalents Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less. Restricted Cash Restricted cash primarily consists of amounts held by lenders to provide future payments for real estate taxes, insurance, tenant and capital improvements, amounts held in escrow relating to acquisitions 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. At December 31, 2016, $138,281,000 of sales proceeds is on deposit in an Internal Revenue Code Section 1031 exchange escrow account with a qualified intermediary. 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. Marketable Securities We classify marketable securities as available-for-sale. These securities are carried at their fair value with unrealized gains and losses recognized in stockholders’ equity as a component of accumulated other comprehensive income (loss). When we determine declines in fair value of marketable securities are other-than- temporary, a loss is recognized in earnings. Redeemable Noncontrolling Interests Certain noncontrolling interests are redeemable at fair value. Accordingly, we record the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income or loss and 85 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 the redeemable weighted-average period of approximately four years. noncontrolling interests are classified outside of permanent equity, as a mezzanine item, in the balance sheet. At December 31, 2016, the current redemption value of redeemable noncontrolling interests exceeded the carrying value of $398,433,000 by $70,818,000. In accordance with ASC 810, During the year ended December 31, 2016, we determined that an immaterial portion of our noncontrolling interests related to a 2015 transaction was misclassified in permanent equity rather than temporary equity based on a redemption feature of the partnership agreement. We have corrected the $114,714,000 misclassification by recording the change in the consolidated statement of equity for the year ended December 31, 2016. During 2014 and 2015, we entered into DownREIT partnerships which give a real estate seller the ability to exchange its property on a tax deferred basis for equity membership interests (“OP units”). The OP units may be redeemed any time following the first anniversary of the date of issuance at the election of the holders for one share of our common stock per unit or, at our option, cash. Real Property Owned Real property developed by us is recorded at cost, including the capitalization of construction period interest. Expenditures for repairs and maintenance are expensed as incurred. Property acquisitions are accounted for as business combinations where we measure the assets acquired, liabilities (including assumed debt and contingencies) and any noncontrolling interests at their fair values on the acquisition date. The cost of real property acquired, which represents substantially all of the purchase price, is allocated to net tangible and identifiable intangible assets based on their respective fair values. These properties are depreciated on a straight- line basis over their estimated useful lives which range from 15 to 40 years for buildings and 5 to 15 years for improvements. Tangible assets primarily consist of land, buildings and improvements, including those related to capital including tenant improvements and lease commissions, to represent the acquisition of productive assets and, accordingly, such costs are reflected as investment activities in our statement of cash flows. leases. We consider costs incurred in conjunction with re-leasing properties, The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value associated with the presence of in-place tenants or residents. The value allocable to the above or below market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in acquired lease intangibles and below market leases are included in other liabilities in the balance sheet and are amortized to rental income over the remaining terms of the respective leases. relationship values for in-place tenants based on management’s evaluation of The total amount of other intangible assets acquired is further allocated to in-place lease values and customer 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 will be amortized over the remaining life of the lease. 86 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset and the existence of a master lease which may link the cash flows of an individual asset to a larger portfolio of assets leased to the same tenant. If these factors and the projected undiscounted cash flows of the asset over the remaining depreciation period indicate that the asset will not be recoverable, the carrying value is reduced to the estimated fair market value. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us. Capitalization of Construction Period Interest We capitalize interest costs associated with funds used for the construction of properties owned directly by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our cost of financing. Our interest expense reflected in the consolidated statements of comprehensive income has been reduced by the amounts capitalized. Gain on Sale of Assets We recognize sales of assets only upon the closing of the transaction with the purchaser. Payments received from purchasers prior to closing are recorded as deposits and classified as other assets on our consolidated balance sheets. Gains on assets sold are recognized using the full accrual method upon closing when (i) the collectability of the sales price is reasonably assured, (ii) we are not obligated to perform significant activities after the sale to earn the profit, (iii) we have received adequate initial investment from the purchaser and (iv) other profit recognition criteria have been satisfied. Gains may be deferred in whole or in part until the sales satisfy the requirements of gain recognition on sales of real estate. Real Estate Loans Receivable Real estate loans receivable consist of mortgage loans and other real estate loans. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risks. The loans are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guaranties and/or personal guaranties. Allowance for Losses on Loans Receivable The allowance for losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and value of the underlying collateral. If such factors indicate that there is greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to full accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance. Any loans with collectability concerns are subjected to a projected payoff valuation. The valuation is based on the expected future cash flows and/or the estimated fair value of the 87 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS underlying collateral. The valuation is compared to the outstanding balance to determine the reserve needed for each loan. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. Goodwill We account for goodwill in accordance with U.S. GAAP. Goodwill is tested annually for impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. We have not had any goodwill impairments. Fair Value of Derivative Instruments Derivatives are recorded at fair value on the balance sheet as assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of our forward exchange contracts are estimated by pricing models that consider foreign currency spot rates, forward trade rates and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. See Note 11 for additional information. Federal Income Tax We have elected to be treated as a REIT under the applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our first taxable year, and made no provision for federal income tax purposes prior to our acquisition of our “taxable REIT subsidiaries.” As a result of these as well as subsequent acquisitions, we now record income tax expense or benefit with respect to certain of our entities that are taxed as taxable REIT subsidiaries under provisions similar to those applicable to regular corporations and not under the REIT provisions. We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur. See Note 18 for additional information. Foreign Currency Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. We translate the results of operations of our foreign subsidiaries into U.S. dollars using average rates of exchange in effect during the period, and we translate balance sheet accounts using exchange rates in effect at the end of the period. We record resulting currency translation adjustments in accumulated other comprehensive income, a component of stockholders’ equity, on our consolidated balance sheets. We record transaction gains and losses in our consolidated statements of comprehensive income. 88 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. Reclassifications Certain amounts in prior years have been reclassified to conform to current year presentation. Immaterial Error Correction During the year ended December 31, 2016, we identified and corrected an immaterial mathematical error in the Consolidated Statement of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013. line item of “total comprehensive income attributable to The error affected only the financial statement stockholders” in the Consolidated Statement of Comprehensive Income. Total comprehensive income and total accumulated comprehensive income for all periods presented were not impacted. Additionally, no other line items within any of the other financial statements and none of the footnotes were impacted. The error resulted in an understatement of total comprehensive income attributable to stockholders of $62,332,000, $29,356,000 and $26,534,000 for the years ended December 31, 2015, 2014 and 2013, respectively. See the Consolidated Statement of Comprehensive Income for corrected total comprehensive income attributable to stockholders. New Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The standard is a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted beginning after December 15, 2016. A reporting entity may apply the new standard using either a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or a full retrospective approach. We are currently evaluating the impact of the adoption on our consolidated financial statements and have not yet determined the method by which we will adopt the standard. A significant source of revenue for the Company is generated through leasing arrangements, which are specifically excluded from the new standard. We expect that the new standard will affect our accounting policies related to non-lease revenue, including certain fees in our RIDEA joint ventures, common area maintenance in our outpatient medical properties and real estate sales. Under 2014-09, revenue recognition for real estate sales is mainly based on the transfer of control versus current guidance of continuing involvement. We expect that the new guidance will result in more transactions qualifying as sales of real estate and being recognized at an earlier date than under the current guidance. In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”), which makes certain changes to both the variable interest model and the voting interest model, including changes to (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. We adopted ASU 2015-02 on January 1, 2016. This guidance did not have a significant impact on our consolidated financial statements. In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement- Period Adjustments” (“ASU 2015-16”) to simplify the accounting for business combinations, specifically as it 89 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS relates to measurement-period adjustments. Acquiring entities in a business combination must recognize measurement-period adjustments in the reporting period in which the adjustment amounts are determined. Also, ASU 2015-16 requires entities to present separately on the face of the income statement (or disclose in the notes to the financial statements) the portion of the amount recorded in the current period earnings, by line item, that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. We adopted ASU 2015-16 on January 1, 2016. This guidance did not have a significant impact on our consolidated financial statements. In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which will require entities to measure their investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. The practicability exception will be available for equity investments that do not have readily determinable fair values. ASU 2016-01 is effective for fiscal years and interim periods within those years, beginning after December 15, 2017. We are currently evaluating the impact that the standard will have on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires lessees to recognize assets and liabilities on their balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their income statements over the lease term. It will also require disclosures designed to give financial statement users information regarding amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. We are currently evaluating the impact of this guidance on our consolidated financial statements. We believe that the adoption of this standard will likely have a material impact to our consolidated balance sheet for the recognition of certain operating leases as right-of-use assets and lease liabilities. Our operating lease obligations are described in Note 12 of the consolidated financial statements. We are in the process of analyzing our lease portfolio and evaluating systems to comply with the standard’s retrospective adoption requirements. In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This standard simplifies the accounting treatment for excess tax benefits and deficiencies, forfeitures, and cash flow considerations related to share-based compensation. ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact of the standard; however, we do not expect its adoption to have a significant impact on our consolidated financial statements. In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”. This standard requires a new forward-looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted for fiscal years beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements. In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business”. This standard changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. A reporting entity must apply ASU 2017-01 using a prospective approach. Upon adoption, we expect that the majority of our real estate acquisitions will be deemed asset acquisitions rather than business combinations. We will record identifiable assets acquired, liabilities assumed and any noncontrolling interests associated with any asset acquisitions at cost on a relative fair 90 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS value basis and will capitalize transaction costs. Furthermore, contingent considerations associated with asset acquisitions will be recorded when the contingency is resolved. 3. Real Property Acquisitions and Development The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their respective fair values in accordance with our accounting policies. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with property acquisitions, including due diligence costs, fees for legal and valuation services and termination of pre-existing relationships computed based on the fair lease termination fees and other acquisition-related costs. Certain of our value of the assets acquired, subsidiaries’ functional currencies are the local currencies of their respective countries. See Note 2 for information regarding our foreign currency policies. During the year ended December 31, 2016, we finalized our purchase price allocation of certain previously reported acquisitions and there were no material changes from those previously disclosed. Triple-Net Activity The following provides our purchase price allocations and other triple-net real property investment activity for the periods presented (in thousands): Year Ended December 31, 2016(1) 2015 2014 Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $104,754 418,633 2,876 — 551 $ 95,835 1,061,431 4,408 6 194 $ 141,387 1,365,638 19,196 — 4,895 Total assets acquired(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,814 — — (3,384) 1,161,874 (47,741) — (2,905) Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash acquisition related activity(3) Cash disbursed for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accruals Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . Non-cash related activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash disbursed for construction in progress . . . . . . . . . . . . . . . . . . . . . . . . Capital improvements to existing properties . . . . . . . . . . . . . . . . . . . . . . . . (3,384) (26,771) (51,733) 444,926 181,084 (8,729) (3,665) — 168,690 32,603 (50,646) (13,465) (38,355) 1,059,408 143,140 (5,699) (167) — 1,531,116 (130,638) (48,567) (9,067) (188,272) — (3,453) 1,339,391 135,349 (4,582) 421 (14,459) 137,274 45,293 116,729 18,901 Total cash invested in real property, net of cash acquired . . . . . . . . . . . . $646,219 $1,241,975 $1,475,021 91 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Includes acquisitions with an aggregate purchase price of $67,847,000 for which the allocation of the purchase price consideration is preliminary and subject to change. (2) Excludes $682,000, $16,572,000 and $1,382,000 of cash acquired during the years ended December 31, 2016, 2015 and 2014, respectively. (3) For the year ended December 31, 2016, primarily relates to $45,044,000 for the acquisition of assets previously financed as real estate loans receivable and $6,630,000 previously financed as an equity investment. For the year ended December 31, 2015, primarily relates to $23,288,000 for the acquisition of assets previously financed as real estate loans receivable and $6,743,000 previously financed as equity investments. Seniors Housing Operating Activity Acquisitions of seniors housing operating properties are structured under RIDEA, which is described in Note 18. This structure results in the inclusion of all resident revenues and related property operating expenses from the operation of these qualified health care properties in our consolidated statements of comprehensive income. The following is a summary of our seniors housing operating real property investment activity for the periods presented (in thousands): Year Ended December 31, 2016(1) 2015 2014 Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets acquired(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior unsecured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash acquisition related activity(3) $ 164,653 1,518,472 115,643 — 216 2,462 1,801,446 (63,732) — (23,681) (87,413) (6,007) (47,065) Cash disbursed for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Capitalized interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,660,961 157,845 (5,793) (8,500) $ 218,581 2,367,486 187,512 — 11,798 29,501 $ 57,534 297,314 12,983 27,957 804 9,327 2,814,878 (871,471) (24,621) (81,778) (977,870) (183,854) — 1,653,154 44,173 (1,740) (2,499) 405,919 (19,834) — (17,802) (37,636) (482) — 367,801 12,291 (714) (2,012) Cash disbursed for construction in progress . . . . . . . . . . . . . . . . . . . . . . . . Capital improvements to existing properties . . . . . . . . . . . . . . . . . . . . . . . . 143,552 138,673 39,934 104,308 9,565 86,803 Total cash invested in real property, net of cash acquired . . . . . . . . . . $1,943,186 $1,797,396 $464,169 (1) Includes an aggregate purchase price of $1,672,961,000 relating to acquisitions for which the allocation of the purchase price consideration is preliminary and subject to change. (2) Excludes $135,000, $30,930,000 and $9,060,000 of cash acquired during the years ended December 31, 2016, 2015 and 2014, respectively. (3) Primarily relates to the acquisition of assets previously financed as an equity investment. 92 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Outpatient Medical Activity Accrued contingent consideration related to certain outpatient medical acquisitions was $0, $0 and $27,374,000 as of December 31, 2016, 2015 and 2014, respectively. The following is a summary of our outpatient medical real property investment activity for the periods presented (in thousands): Year Ended December 31, 2016(1) 2015 2014 Land and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquired lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and other assets $ 5,738 46,056 4,592 — $ 223,708 614,770 45,226 939 $ 63,129 567,847 46,661 — Total assets acquired(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,386 884,643 — (120,977) (7,777) (1,670) 677,637 (66,113) (22,293) Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash acquisition related activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,670) — (15,013)(3) (128,754) (76,535) (27,025)(4) (45,836)(3) (88,406) (39,987) Cash disbursed for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Capitalized interest Accruals(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,703 113,933 (3,723) (19,321) 652,329 70,560 (1,286) (1,921) 503,408 99,878 (1,854) (26,437) Cash disbursed for construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital improvements to existing properties . . . . . . . . . . . . . . . . . . . . . . . . . . 90,889 47,870 67,353 38,151 71,587 27,076 Total cash invested in real property, net of cash acquired . . . . . . . . . . . . $178,462 $ 757,833 $602,071 (1) Includes acquisitions with an aggregate purchase price of $18,784,000 for which the allocation of the purchase price consideration is preliminary and subject to change. (2) Excludes $0, $5,522,000 and $0 of cash acquired during the years ended December 31, 2016, 2015 and 2014, respectively. (3) The non-cash activity relates to the acquisition of assets previously financed as real estate loans. Please refer to Note 6 for additional information. (4) The non-cash activity relates to the acquisition of a controlling interest in a portfolio of properties that was historically reported as an unconsolidated property investment. (5) Represents non-cash consideration accruals for amounts to be paid in future periods relating to properties that converted in the periods noted above. 93 WELLTOWER INC. 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: December 31, 2016 Year Ended December 31, 2015 December 31, 2014 Development projects: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical $ 46,094 18,979 108,001 Total development projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expansion projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,074 11,363 $104,844 19,869 16,592 141,305 38,808 $ 71,569 — 127,290 198,859 24,804 Total construction in progress conversions . . . . . . . . . . . . . . . . . . . . . . . $184,437 $180,113 $223,663 At December 31, 2016, future minimum lease payments receivable under operating leases (excluding properties in our seniors housing operating partnerships and excluding any operating expense reimbursements) are as follows (in thousands): 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,258,565 1,243,041 1,196,065 1,178,410 1,126,074 8,459,291 $14,461,446 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): Assets: In place lease intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Above market tenant leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Below market ground leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross historical cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average amortization period in years . . . . . . . . . . . . . . . . . . Liabilities: Below market tenant leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Above market ground leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross historical cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average amortization period in years . . . . . . . . . . . . . . . . . . 94 December 31, 2016 December 31, 2015 $1,252,143 61,700 61,628 27,413 1,402,884 (966,714) $ 436,170 $1,179,537 67,529 80,224 23,295 1,350,585 (881,096) $ 469,489 13.7 13.4 $ $ 89,468 8,107 97,575 (52,134) 45,441 15.2 $ $ 93,089 7,907 100,996 (46,048) 54,948 14.5 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of real estate intangible amortization for the periods presented (in thousands): Year Ended December 31, 2015 2014 2016 Rental income related to above/below market tenant leases, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 919 $ (2,746) $ 509 Property operating expenses related to above/below market ground leases, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,241) (1,272) (1,248) Depreciation and amortization related to in place lease intangibles and lease commissions . . . . . . . . . . . . . . . . . . . . (132,141) (115,855) (214,966) The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands): 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $141,094 78,905 33,228 22,958 19,045 140,940 $ 6,544 5,959 5,551 5,074 4,586 17,727 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $436,170 $45,441 Assets Liabilities 5. Dispositions, Assets Held for Sale and Discontinued Operations 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, operator or geography). Impairment of assets, as reflected in our consolidated statements of comprehensive income, primarily represents the charges necessary to adjust the carrying values of certain properties to estimated fair values less costs to sell. The following is a summary of our real property disposition activity for the periods presented (in thousands): December 31, 2016 Year Ended December 31, 2015 December 31, 2014 Real property dispositions: Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Land parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain (loss) on sales of real property, net . . . . . . . . . . . . . . Net other assets/liabilities disposed . . . . . . . . . . . . . . . . . $1,773,614 78,786 — 1,852,400 364,046 133,622 $356,300 181,553 5,724 543,577 280,387 — $747,720 45,695 — 793,415 153,522 (35,872) Proceeds from real property sales . . . . . . . . . . . . . . . . . . . $2,350,068 $823,964 $911,065 (1) Dispositions occurring in the year ended December 31, 2015 primarily relate to the disposition of an unconsolidated equity investment with Forest City Enterprises. 95 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended December 31, 2016, we completed two portfolio dispositions of properties leased to Genesis Healthcare for which we received loans for termination fees relating to the properties sold under the is outstanding on the loans. The related master lease. At December 31, 2016, $74,445,000 of principal termination fee income will be deferred and recognized as the principal balance of the loans are repaid. Dispositions and Assets Held for Sale Pursuant to our adoption of ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (ASU 2014-08”), operating results attributable to properties sold subsequent to or classified as held for sale after January 1, 2014 and which do not meet the definition of discontinued operations are no longer reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands): Year Ended December 31, 2016 2015 2014 Revenues: Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $310,390 $352,615 $401,640 Expenses: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,599 10,846 68,280 64,741 12,117 88,580 80,893 14,127 111,593 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,725 165,438 206,613 Income (loss) from real estate dispositions, net . . . . . . . . . . . . . . $181,665 $187,177 $195,027 6. Real Estate Loans Receivable The following is a summary of our real estate loans receivable (in thousands): Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other real estate loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $485,735 136,893 $635,492 184,000 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $622,628 $819,492 December 31, 2016 2015 96 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of our real estate loan activity for the periods presented (in thousands): December 31, 2016 Year Ended December 31, 2015 December 31, 2014 Triple-net Outpatient Medical Totals Triple-net Outpatient Medical Totals Triple-net Outpatient Medical Totals Advances on real estate loans receivable: Investments in new loans . . . . . $ Draws on existing loans . . . . . . Net cash advances on real estate loans . . . . . . . . . . . . . . . . . . . Receipts on real estate loans receivable: Loan payoffs . . . . . . . . . . . . . . . Principal payments on loans . . . Sub-total Less: Non-cash activity(1) . . . . . . . . . . . . . . . . . . . . . 8,445 118,788 $ — $ 2,651 8,445 $530,497 65,614 121,439 $ — $530,497 $ 61,730 59,420 68,225 2,611 $ 60,902 20,155 $122,632 79,575 127,233 2,651 129,884 596,111 2,611 598,722 121,150 81,057 202,207 275,439 6,867 27,303 — 302,742 6,867 121,778 33,340 — 121,778 33,340 — 71,004 31,998 48,258 72 119,262 32,070 282,306 (45,044) 27,303 (15,013) 309,609 (60,057) 155,118 (23,288) — 155,118 (23,288) — 103,002 48,330 — (45,836) 151,332 (45,836) Net cash receipts on real estate loans . . . . . . . . . . . . . . . . . . . 237,262 12,290 249,552 131,830 — 131,830 103,002 2,494 105,496 Net cash advances (receipts) on real estate loans . . . . . . . . . . . . . (110,029) (9,639) (119,668) 464,281 2,611 466,892 18,148 78,563 96,711 Change in balance due to foreign currency translation . . . . . . . . . . . . . . . . . . . . . Loan impairments(2) Net change in real estate loans (14,086) — — (3,053) (14,086) (3,053) (4,281) — — — (4,281) — (2,852) — — — (2,852) — receivable . . . . . . . . . . . . . . . . . $(169,159) $(27,705) $(196,864) $436,712 $2,611 $439,323 $ 15,296 $ 32,727 $ 48,023 (1) Represents an acquisition of assets previously financed as a real estate loan. Please see Note 3 for additional information. (2) Represents a direct write down of an impaired loan receivable. The Company restructured two existing real estate loans in the triple-net segment to Genesis Healthcare. The two existing loans, with a combined principal balance of $317,000,000, were scheduled to mature in 2017 and 2018. These loans were restructured into four separate loans effective October 1, 2016. Each loan has a five year term, a 10% interest rate and 25 basis point annual escalator. We recorded a loan loss charge in the amount of $6,935,000 on one of the loans as the present value of expected future cash flows was less than the carrying value of the loan. We expect to collect all principal amounts due under the loans. The following is a summary of the allowance for losses on loans receivable for the periods presented (in thousands): Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in present value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $— $— — 6,935 — — (372) — Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,563 $— $— Year Ended December 31, 2016 2015 2014 (1) Excludes direct write down of an impaired loan receivable. 97 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of our loan impairments (in thousands): Year Ended December 31, 2015 2016 2014 Balance of impaired loans at end of year . . . . . . . . . . . . . . . . . . . . . Allowance for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $377,549 6,563 $ — $21,000 — — Balance of impaired loans not reserved . . . . . . . . . . . . . . . . . . . . . . $370,986 $ — $21,000 Average impaired loans for the year . . . . . . . . . . . . . . . . . . . . . . . . Interest recognized on impaired loans(1) . . . . . . . . . . . . . . . . . . . . . . $188,775 8,707 $10,500 — $10,750 757 (1) Represents interest recognized in period since loans were identified as impaired. 7. Investments in Unconsolidated Entities We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. The results of operations for these properties have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our 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, 2016 December 31, 2015 Triple-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . . . . . . . . . Outpatient medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% to 49% 10% to 50% 43% $ 27,005 407,172 22,961 $ 36,351 499,537 6,393 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $457,138 $542,281 (1) Excludes ownership of in-substance real estate. At December 31, 2016, the aggregate unamortized basis difference of our joint venture investments of $149,147,000 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 entity. This difference will be amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities. 98 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Credit Concentration We use net operating income from continuing operations (“NOI”) as our credit concentration metric. See Note 17 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the year ended December 31, 2016, excluding our share of NOI in unconsolidated entities (dollars in thousands): Number of Properties Total NOI Percent of NOI(2) Concentration by relationship:(1) Genesis Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sunrise Senior Living(3) Revera . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brookdale Senior Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benchmark Senior Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . Remaining portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 152 98 148 48 781 $ 373,577 308,771 153,712 151,337 96,958 1,319,822 16% 13% 6% 6% 4% 55% Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,313 $2,404,177 100% (1) Genesis Healthcare is in our triple-net segment. Sunrise Senior Living and Revera are in our seniors housing operating segment. Brookdale Senior Living and Benchmark Senior Living are in both our triple-net and seniors housing operating segments. (2) Investments with our top five relationships comprised 46% of total NOI in 2015. (3) Revera owns a controlling interest in Sunrise Senior Living. For the year ended December 31, 2016, we recognized $998,783,000 of revenue from Sunrise Senior Living. 9. Borrowings Under Credit Facilities and Related Items At December 31, 2016, we had a primary unsecured credit facility with a consortium of 29 banks that includes a $3,000,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000, 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, 2016). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (1.66% at December 31, 2016). The applicable margin is based on certain of our debt ratings and was 0.90% at December 31, 2016. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on certain of our debt ratings and was 0.15% at December 31, 2016. The term credit facilities mature on May 13, 2021. The revolving credit facility is scheduled to mature on May 13, 2020 and can be extended for two successive terms of six months each at our option. The following information relates to aggregate borrowings under the primary unsecured revolving credit facility for the periods presented (dollars in thousands): Balance outstanding at year end(1) . . . . . . . . . . . . . . . . . . . . . . . Maximum amount outstanding at any month end . . . . . . . . . . . Average amount outstanding (total of daily principal balances divided by days in period) . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average interest rate (actual interest expense Year Ended December 31, 2016 2015 2014 $ 645,000 $1,560,000 $835,000 $835,000 — $ $637,000 $ 762,896 $452,644 $207,452 divided by average borrowings outstanding) . . . . . . . . . . . . 1.39% 1.17% 1.50% 99 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) As of December 31, 2016, letters of credit in the aggregate amount of $41,878,000 have been issued, which reduce the available borrowing capacity on our primary unsecured revolving credit facility. 10. Senior Unsecured Notes and Secured Debt We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (1) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (2) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At December 31, 2016, the annual principal payments due on these debt obligations were as follows (in thousands): Senior Unsecured Notes(1,2) Secured Debt(1,3) 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021(5,6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter(7,8,9,10) $ — $ 550,620 697,557 623,753 166,932 349,106 1,077,098 450,000 605,000 673,447 1,136,206 5,395,385 $ Totals 550,620 1,147,557 1,228,753 840,379 1,485,312 6,472,483 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,260,038 $3,465,066 $11,725,104 (1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the consolidated balance sheet. (2) Annual interest rates range from 1.4% to 6.5%. (3) Annual interest rates range from 1.24% to 7.98%. Carrying value of the properties securing the debt totaled $6,149,872,000 at December 31, 2016. (4) In November 2015, one of our wholly-owned subsidiaries issued and we guaranteed $300,000,000 of Canadian-denominated 3.35% senior unsecured notes due 2020 (approximately $223,447,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2016). (5) On May 13, 2016, we refinanced the funding on a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $186,206,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2016). The loan matures on May 13, 2021 and bears interest at the Canadian Dealer Offered Rate plus 95 basis points (1.84% at December 31, 2016). (6) On May 13, 2016, we refinanced the funding on a $500,000,000 unsecured term credit facility. The loan matures on May 13, 2021 and bears interest at LIBOR plus 95 basis points (1.63% at December 31, 2016). (7) On November 20, 2013, we completed the sale of £550,000,000 (approximately $678,535,000 based on the Sterling/U.S. Dollar exchange rate in effect on December 31, 2016) of 4.8% senior unsecured notes due 2028. (8) On November 25, 2014, we completed the sale of £500,000,000 (approximately $616,850,000 based on the Sterling/U.S. Dollar exchange rate in effect on December 31, 2016) of 4.5% senior unsecured notes due 2034. (9) In May 2015, we issued $750,000,000 of 4.0% senior unsecured notes due 2025. In October 2015, we issued an additional $500,000,000 of these notes under a re-opening of the offer. (10) In March 2016, we issued $700,000,000 of 4.25% senior unsecured notes due 2026. 100 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of our senior unsecured note principal activity during the periods presented (dollars in thousands): December 31, 2016 December 31, 2015 December 31, 2014 Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Year Ended Beginning balance . . . . . . Debt issued . . . . . . . . . . . . Debt assumed . . . . . . . . . . Debt extinguished . . . . . . . Debt redeemed . . . . . . . . . Foreign currency . . . . . . . . $8,645,758 705,000 — (850,000) — (240,720) 4.237% $7,817,154 1,475,540 4.228% 24,621 0.000% (300,000) 4.194% (240,249) 0.000% (131,308) 4.565% 4.385% $7,421,707 838,804 3.901% — 6.000% (298,567) 6.200% (59,143) 3.303% (85,647) 3.966% 4.395% 4.572% 0.000% 5.855% 3.000% 4.222% Ending balance . . . . . . . . . $8,260,038 4.245% $8,645,758 4.237% $7,817,154 4.385% The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands): December 31, 2016 December 31, 2015 December 31, 2014 Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Amount Weighted Avg. Interest Rate Year Ended Beginning balance . . . . . . Debt issued . . . . . . . . . . . . Debt assumed . . . . . . . . . . Debt extinguished . . . . . . . Principal payments . . . . . . Foreign currency . . . . . . . . $3,478,207 460,015 60,898 (489,293) (74,466) 29,705 4.440% $2,941,765 228,685 2.646% 1,007,482 4.301% (506,326) 5.105% (67,064) 4.663% (126,335) 3.670% 4.940% $3,010,711 109,503 2.776% 204,949 3.334% (279,559) 4.506% (62,280) 4.801% (41,559) 3.834% 5.095% 3.374% 4.750% 4.824% 4.930% 3.811% Ending balance . . . . . . . . . $3,465,066 4.094% $3,478,207 4.440% $2,941,765 4.940% 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, 2016, we were in compliance with all of the covenants under our debt agreements. 11. Derivative Instruments We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We may elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to manage the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. In addition, non-U.S. investments expose us to the potential losses associated with adverse changes in foreign currency to U.S. Dollar exchange rates. We have elected to manage these risks through the use of forward exchange contracts and issuing debt in the foreign currency. 101 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Swap Contracts and Foreign Currency Forward Contracts Designated as Cash Flow Hedges For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period, or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings. Approximately $7,650,000 of gains, which are included in accumulated other comprehensive income (“AOCI”), are expected to be reclassified into earnings in the next 12 months. Foreign Currency Hedges For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. During the years ended December 31, 2016 and 2015, we settled certain net investment hedges generating cash proceeds of $108,347,000 and $106,360,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings when the hedged investment is sold or substantially liquidated. The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands): December 31, 2016 December 31, 2015 Derivatives designated as net investment hedges: Denominated in Canadian Dollars . . . . . . . . . . . . . . . . . . . . . . . . Denominated in Pounds Sterling . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments designated as net investment hedges: Denominated in Canadian Dollars . . . . . . . . . . . . . . . . . . . . . . . . Denominated in Pounds Sterling . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives designated as cash flow hedges: Denominated in U.S. Dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denominated in Canadian Dollars . . . . . . . . . . . . . . . . . . . . . . . . Denominated in Pounds Sterling . . . . . . . . . . . . . . . . . . . . . . . . . Derivative instruments not designated: Denominated in Canadian Dollars . . . . . . . . . . . . . . . . . . . . . . . . $ 900,000 £ 550,000 $ 1,175,000 550,000 £ $ 250,000 £1,050,000 250,000 $ £ 1,050,000 $ $ £ $ 57,000 54,000 48,000 37,000 $ $ £ $ 57,000 72,000 60,000 47,000 The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands): Location December 31, 2016 December 31, 2015 December 31, 2014 Year Ended Gain (loss) on forward exchange contracts recognized in income . . . . . . . . . . . . . . . . . . . Interest expense $ 8,544 $ 14,474 $ Loss (gain) on option exercise(1) . . . . . . . . . . . . . Loss (gain) on derivatives, net $ — $ (58,427) $ — — Gain on release of cumulative translation adjustment related to ineffectiveness on net investment hedge . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net Gain (loss) on forward exchange contracts and term loans designated as net investment hedge recognized in OCI . . . . . . . . . . . . . . . . OCI $ (2,516) $ — $ — $357,021 $298,116 $103,140 102 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature. 12. Commitments and Contingencies At December 31, 2016, we had twelve outstanding letter of credit obligations totaling $174,799,000 and expiring between 2017 and 2024. At December 31, 2016, we had outstanding construction in process of $506,091,000 for leased properties and were committed to providing additional funds of approximately $493,972,000 to complete construction. At December 31, 2016, we had contingent purchase obligations totaling $29,127,000. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. Rents due from the tenant are increased to reflect the additional investment in the property. We evaluate our leases for operating versus capital lease treatment in accordance with ASC Topic 840 “Leases.” A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90% of the fair value of the leased asset. Certain leases contain bargain purchase options and have been classified as capital leases. At December 31, 2016, we had operating lease obligations of $1,105,992,000 relating to certain ground leases and Company office space. Regarding the ground leases, we have sublease agreements with certain of our operators that require the operators to reimburse us for our monthly operating lease obligations. At December 31, 2016, aggregate future minimum rentals to be received under these noncancelable subleases totaled $74,744,000. At December 31, 2016, future minimum lease payments due under operating and capital leases are as follows (in thousands): Operating Leases Capital Leases(1) 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,939 17,063 17,269 16,810 16,647 1,021,264 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,105,992 $ 4,731 4,678 4,334 4,173 4,173 71,747 $93,836 (1) Amounts above represent principal and interest obligations under capital lease arrangements. Related assets with a gross value of $167,324,000 and accumulated depreciation of $24,929,000 are recorded in real property. 103 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13. Stockholders’ Equity The following is a summary of our stockholder’s equity capital accounts as of the dates indicated: December 31, 2016 December 31, 2015 Preferred Stock, $1.00 par value: Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000,000 25,875,000 25,875,000 Common Stock, $1.00 par value: Authorized shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issued shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700,000,000 363,576,924 362,602,173 50,000,000 25,875,000 25,875,000 700,000,000 355,594,373 354,777,670 Preferred Stock. The following is a summary of our preferred stock activity during the periods presented: December 31, 2016 December 31, 2015 December 31, 2014 Shares Weighted Avg. Dividend Rate Shares Weighted Avg. Dividend Rate Shares Weighted Avg. Dividend Rate Year Ended Beginning balance . . . . . . Shares converted . . . . . . . 25,875,000 — 6.500% 0.000% 25,875,000 — 6.500% 26,108,236 (233,236) 0.000% Ending balance . . . . . . . . 25,875,000 6.500% 25,875,000 6.500% 25,875,000 6.496% 6.000% 6.500% During the three months ended December 31, 2010, we issued 349,854 shares of 6.00% Series H Cumulative Convertible and Redeemable Preferred Stock in connection with a business combination. During the years ended December 31, 2013 and 2014, all shares were converted into common stock, leaving zero shares outstanding. During the three months ended March 31, 2011, we issued 14,375,000 of 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. These shares have a liquidation value of $50.00 per share. Dividends are payable quarterly in arrears. The preferred stock is not redeemable by us. The preferred shares are convertible, at the holder’s option, into 0.8460 shares of common stock (equal to an initial conversion price of approximately $59.10). During the three months ended March 31, 2012, we issued 11,500,000 of 6.50% Series J Cumulative Redeemable Preferred Stock. Dividends are payable quarterly in arrears. On February 2, 2017, we announced that we will redeem all 11,500,000 shares outstanding on March 7, 2017 at a redemption price of $25.00 per share plus accrued and unpaid dividends to, but not including, March 7, 2017. 104 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Common Stock. The following is a summary of our common stock issuances during the periods indicated (dollars in thousands, except per share amounts): Shares Issued Average Price Gross Proceeds Net Proceeds June 2014 public issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,100,000 September 2014 public issuance . . . . . . . . . . . . . . . . . . . . . . . . 17,825,000 2014 Dividend reinvestment plan issuances . . . . . . . . . . . . . . . 4,122,941 498,549 2014 Option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,236 2014 Preferred stock conversions . . . . . . . . . . . . . . . . . . . . . . . 188,147 2014 Stock incentive plans, net of forfeitures . . . . . . . . . . . . . . 258,542 2014 Senior note conversions . . . . . . . . . . . . . . . . . . . . . . . . . . $62.35 63.75 62.35 45.79 $1,003,835 $ 968,517 1,095,465 1,136,344 257,055 257,055 22,831 22,831 — — — — — — 2014 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,226,415 $2,420,065 $2,343,868 February 2015 public issuance . . . . . . . . . . . . . . . . . . . . . . . . . 19,550,000 2015 Dividend reinvestment plan issuances . . . . . . . . . . . . . . . 4,024,169 249,054 2015 Option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696,070 2015 Equity Shelf Program issuances . . . . . . . . . . . . . . . . . . . . 2015 Stock incentive plans, net of forfeitures . . . . . . . . . . . . . . 137,837 2015 Senior note conversions . . . . . . . . . . . . . . . . . . . . . . . . . . 1,330,474 $75.50 67.72 47.35 69.23 $1,476,025 $1,423,935 272,531 11,793 47,463 — — 272,531 11,793 48,186 — — 2015 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,987,604 $1,808,535 $1,755,722 2016 Dividend reinvestment plan issuances . . . . . . . . . . . . . . . 4,145,457 141,405 2016 Option exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 Equity Shelf Program issuances . . . . . . . . . . . . . . . . . . . . 3,134,901 402,740 2016 Stock incentive plans, net of forfeitures . . . . . . . . . . . . . . $70.34 47.13 75.27 $ 291,852 $ 291,571 6,664 235,959 — 6,664 238,286 — 2016 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,824,503 $ 536,802 $ 534,194 Dividends. The increase in dividends is primarily attributable to increases in our common shares outstanding as described above. Please refer to Notes 2 and 18 for information related to federal income tax of dividends. The following is a summary of our dividend payments (in thousands, except per share amounts): December 31, 2016 December 31, 2015 December 31, 2014 Per Share Amount Per Share Amount Per Share Amount Year Ended $1,144,727 $3.18000 — 0.00794 3.25000 1.62510 46,719 18,687 $1,210,133 $ 969,661 1 46,719 18,688 $1,035,069 Common Stock . . . . . . . . . . . . . . . . . Series H Preferred Stock . . . . . . . . . Series I Preferred Stock . . . . . . . . . . Series J Preferred Stock . . . . . . . . . . $3.44000 — 3.25000 1.62510 Totals . . . . . . . . . . . . . . . . . . . . . . . . $3.30000 — 3.25000 1.62510 $1,233,519 — 46,719 18,687 $1,298,925 105 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated Other Comprehensive Income. The following is a summary of accumulated other comprehensive income/(loss) for the periods presented (in thousands): Unrecognized gains (losses) related to: Foreign Currency Translation Equity Investments Actuarial losses Cash Flow Hedges Total Balance at December 31, 2015 . . . . . . . . . . . . $ (85,484) Other comprehensive income (loss) before $ — $(1,343) $(1,416) $ (88,243) reclassification adjustments . . . . . . . . . . . . Reclassification amount to net income . . . . . . (90,528) 2,516 5,120 — 190 — 1,414 — (83,804) 2,516 Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (88,012) 5,120 190 1,414 (81,288) Balance at December 31, 2016 . . . . . . . . . . . . $(173,496) $5,120 $(1,153) $ (2) $(169,531) Balance at December 31, 2014 . . . . . . . . . . . . $ (74,770) Other comprehensive income (loss) before reclassification adjustments . . . . . . . . . . . . Reclassification amount to net income . . . . . . (10,714) — Net current-period other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . (10,714) $ — $(1,589) $ (650) $ (77,009) — — — 246 (2,626) — 1,860 (13,094) 1,860 246 (766) (11,234) Balance at December 31, 2015 . . . . . . . . . . . . $ (85,484) $ — $(1,343) $(1,416) $ (88,243) Other Equity. Other equity consists of accumulated option compensation expense, which represents the amount of amortized compensation costs related to stock options awarded to employees and directors. 14. Stock Incentive Plans In May 2016, our shareholders approved the 2016 Long-Term Incentive Plan (“2016 Plan”), which 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. Awards granted after May 5, 2016 will be issued out of the 2016 Plan. The awards granted under the Amended and Restated 2005 Long-Term Incentive Plan continue to vest and options expire ten years from the date of grant. 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 and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to five years. Options expire ten years from the date of grant. Under our long-term incentive plan, certain restricted stock awards are performance based. We will grant a target number of restricted stock units, with the ultimate award determined by the total shareholder return and operating performance metrics, measured in each case over a measurement period of three years. One third of the award will vest immediately at the end of the three year performance period, one third will vest a year after the performance period, and the remaining one third will vest two years after the performance period. Compensation expense for these performance grants is measured based on the probability of achievement of certain performance goals and is recognized over both the performance period and vesting period. For the portion of the grant for which the award is determined by the operating performance metrics, the estimated compensation cost was based on the grant date closing price and management’s estimate of corporate achievement for the financial metrics. If the estimated number of performance based restricted stock to be earned changes, an adjustment will 106 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS be recorded to recognize the accumulated difference between the revised and previous estimates. For the portion of the grant determined by the total shareholder return, management used a Monte Carlo model to assess the compensation cost. The expected term represents the period from the grant date to the end of the three-year performance period. The estimated compensation cost for each performance based plan was derived using the assumptions presented in the following table: Risk Free Rates Volatility(1) Dividend Yield 2015-2017 Program . . . . . . . . . . . . . . . . . . . . . 2016-2018 Program . . . . . . . . . . . . . . . . . . . . . 0.16% - 1.16% 13.64% - 42.75% 0.40% - 1.07% 15.75% - 38.61% 4.818% 5.039% (1) Figures use 50% historical and 50% implied volatility. The following table summarizes compensation expense recognized for the periods presented (in thousands): Year Ended December 31, 2016 2015 2014 Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 266 28,603 $ 698 30,146 $ 912 31,163 $28,869 $30,844 $32,075 Stock Options We have not granted stock options since the year ended December 31, 2012 but some remain outstanding. As of December 31, 2016, there was no unrecognized compensation expense related to unvested stock options. Stock options outstanding at December 31, 2016 have an aggregate intrinsic value of $5,553,000. Restricted Stock The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant and is amortized over the vesting periods. As of December 31, 2016, there was $32,830,000 of total unrecognized compensation expense related to unvested restricted stock that is expected to be recognized over a weighted-average period of three years. The following table summarizes information about non-vested restricted stock incentive awards as of and for the year ended December 31, 2016: Restricted Stock Number of Shares (000’s) Weighted-Average Grant Date Fair Value Non-vested at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 638 (396) 785 (40) 987 $62.00 64.36 59.42 62.64 $58.98 107 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 15. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): Year Ended December 31, 2016 2015 2014 Numerator for basic and diluted earnings per share — net income attributable to common stockholders . . . . . . . . . . . . $1,012,397 $818,344 $446,745 Denominator for basic earnings per share: weighted-average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,275 348,240 306,272 Effect of dilutive securities: Employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-vested restricted shares . . . . . . . . . . . . . . . . . . . . . . . . . Redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible senior unsecured notes . . . . . . . . . . . . . . . . . . . Dilutive potential common shares . . . . . . . . . . . . . . . . . . . . . . . Denominator for diluted earnings per share: adjusted- 110 449 1,393 — 1,952 143 535 310 196 188 500 — 787 1,184 1,475 weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,227 349,424 307,747 Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 2.83 2.81 $ $ 2.35 2.34 $ $ 1.46 1.45 Stock options outstanding were anti-dilutive for the years ended December 31, 2016, 2015 and 2014. The Series H Cumulative Convertible and Redeemable Preferred Stock and the Series I Cumulative Convertible Perpetual Preferred Stock were excluded from the calculations as the effect of the conversions also were anti- dilutive. 16. Disclosure about Fair Value of Financial Instruments U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value: • 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. 108 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Mortgage Loans and Other Real Estate Loans Receivable — The fair value of mortgage loans and other real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Cash and Cash Equivalents — The carrying amount approximates fair value. Available-for-sale Equity Investments — Available-for-sale equity investments are recorded at their fair value based on Level 1 publicly available trading prices. Borrowings Under Primary Unsecured Credit Facility — The carrying amount of the primary unsecured credit facility approximates fair value because the borrowings are interest rate adjustable. Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable. Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable. Foreign Currency Forward Contracts — Foreign currency forward contracts are recorded in other assets or other liabilities on the balance sheet at fair market value. Fair market value is determined using Level 2 inputs by estimating the future value of the currency pair based on existing exchange rates, comprised of current spot and traded forward points, and calculating a present value of the net amount using a discount factor based on observable traded interest rates. Redeemable OP Unitholder Interests — Our redeemable unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances. The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands): December 31, 2016 December 31, 2015 Carrying Amount Fair Value Carrying Amount Fair Value Financial Assets: Mortgage loans receivable . . . . . . . . . . . Other real estate loans receivable . . . . . . Available-for-sale equity investments . . . Cash and cash equivalents . . . . . . . . . . . . Foreign currency forward contracts . . . . $ 485,735 136,893 27,899 419,378 135,561 $ 521,773 138,050 27,899 419,378 135,561 $ 635,492 184,000 22,779 360,908 129,520 $ 663,501 185,693 22,779 360,908 129,520 Financial Liabilities: Borrowings under unsecured lines of credit arrangements . . . . . . . . . . . . . . . Senior unsecured notes . . . . . . . . . . . . . . Secured debt . . . . . . . . . . . . . . . . . . . . . . Foreign currency forward contracts . . . . Redeemable OP unitholder interests . . . . . . $ 645,000 8,879,176 3,558,378 4,342 $ 110,502 $ 835,000 8,548,055 3,509,142 — $ 112,029 $ 835,000 9,020,529 3,678,564 — $ 112,029 $ 645,000 8,161,619 3,477,699 4,342 $ 110,502 109 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2016 Total Level 1 Level 2 Level 3 Available-for-sale equity investments(1) . . . . . . . . . . . . . Foreign currency forward contracts, net(2) . . . . . . . . . . . Redeemable OP unitholder interests . . . . . . . . . . . . . . . $ 27,899 131,219 110,502 $27,899 — — $ — $— — — 131,219 110,502 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $269,620 $27,899 $241,721 $— (1) Unrealized gains or losses on equity investments are recorded in accumulated other comprehensive income (loss) at each measurement date. During the year ended December 31, 2015, we recognized an other than temporary impairment charge of $35,648,000 on the Genesis Healthcare stock investment. Also, see Note 11 for details related to the gain on the derivative asset originally recognized. (2) Please see Note 11 for additional information. Items Measured at Fair Value on a Nonrecurring Basis In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis. As these assets and liabilities are not measured at fair value on a recurring basis, they are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired/assumed in business combinations (see Note 3) and asset impairments (see Note 5 for impairments of real property and Note 6 for impairments of loans receivable). We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally reside within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of secured debt assumed in business combinations using current interest rates at which similar borrowings could be obtained on the transaction date. 17. Segment Reporting We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: triple-net, seniors housing operating and outpatient medical. During the year ended December 31, 2016, we reclassified four properties previously classified in the triple-net segment to the outpatient medical segment. In addition, we reclassified interest expense on our foreign-denominated senior notes from the seniors housing operating segment to non-segment. Accordingly, the segment information provided in this Note has been reclassified to conform to the current presentation for all periods presented. Our triple-net properties include long-term/post-acute care facilities, assisted living facilities, independent living/continuing care retirement communities, care homes (United Kingdom), independent support living 110 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS facilities (Canada), care homes with nursing (United Kingdom) and combinations thereof. Under the triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our seniors housing operating properties include the seniors housing communities referenced above that are owned and/or operated through RIDEA structures (see Notes 3 and 18). Our outpatient medical properties include outpatient medical buildings and, during past years, life science buildings which are aggregated into our outpatient medical reportable segment. Our outpatient medical buildings are typically leased to multiple tenants and generally require a certain level of property management. During the year ended December 31, 2015, we disposed of our life science investments. We evaluate performance based upon NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information because it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties. Non-segment revenue consists mainly of interest income on certain non-real estate investments and other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. There are no intersegment sales or transfers. 111 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary information for the reportable segments (which excludes unconsolidated entities) during the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands): Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total Year Ended December 31, 2016: Rental income . . . . . . . . . . . . . . . . . . . . . Resident fees and services . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . $ 1,112,325 — 90,476 6,059 $ — $ 536,490 — 3,307 5,568 2,504,731 4,180 17,085 $ Total revenues . . . . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . . . 1,208,860 — 2,525,996 1,711,882 545,365 165,101 — $ 1,648,815 2,504,731 — 97,963 — 29,651 939 939 — 4,281,160 1,876,983 Net operating income from continuing operations . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . . . Depreciation and amortization . . . . . . . . General and administrative . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for loan losses . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . (Loss) income from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing 1,208,860 21,370 68 297,197 — 10,016 863 6,935 20,169 — 814,114 81,853 — 415,429 — 29,207 (88) — 12,403 — 380,264 19,087 — 188,616 — 3,687 — 3,280 4,635 — 939 399,035 (2,516) — 155,241 — 16,439 — — 11,998 2,404,177 521,345 (2,448) 901,242 155,241 42,910 17,214 10,215 37,207 11,998 852,242 (1,087) 275,310 (3,762) 160,959 (511) (579,258) 24,488 709,253 19,128 9,767 (20,442) 318 — (10,357) operations . . . . . . . . . . . . . . . . . . . . . . 860,922 251,106 160,766 (554,770) 718,024 Gain (loss) on real estate dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355,394 9,880 (1,228) — 364,046 Net income (loss) . . . . . . . . . . . . . . . . . . $ 1,216,316 $ 260,986 $ 159,538 $(554,770) $ 1,082,070 Total assets . . . . . . . . . . . . . . . . . . . . . . . $10,713,032 $12,851,414 $4,951,538 $ 349,200 $28,865,184 112 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total Year Ended December 31, 2015: Rental income . . . . . . . . . . . . . . . . . . . . . Resident fees and services . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . $ 1,094,827 — 74,108 6,871 $ — $ 504,121 — 5,853 4,684 2,158,031 4,180 6,060 $ Total revenues . . . . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . . . 1,175,806 — 2,168,271 1,467,009 514,658 155,248 — $ 1,598,948 2,158,031 — 84,141 — 18,706 1,091 1,091 — 3,859,826 1,622,257 Net operating income from continuing operations . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net Depreciation and amortization . . . . . . . . General and administrative . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of Assets . . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . (Loss) income from unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing 1,175,806 28,384 (58,427) 288,242 — 53,195 10,095 2,220 35,648 701,262 70,388 — 351,733 — 54,966 (195) — — 359,410 27,542 — 186,265 — 2,765 — — — 1,091 365,855 — — 147,416 — 24,777 — 10,583 2,237,569 492,169 (58,427) 826,240 147,416 110,926 34,677 2,220 46,231 816,449 (4,244) 224,370 986 142,838 245 (547,540) (3,438) 636,117 (6,451) 8,260 (32,672) 2,908 — (21,504) operations . . . . . . . . . . . . . . . . . . . . . . 820,465 192,684 145,991 (550,978) 608,162 Gain (loss) on real estate dispositions, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86,261 — 194,126 — 280,387 Net income (loss) . . . . . . . . . . . . . . . . . . $ 906,726 $ 192,684 $ 340,117 $(550,978) $ 888,549 Total assets . . . . . . . . . . . . . . . . . . . . . . . $12,358,605 $11,519,902 $5,060,676 $ 84,662 $29,023,845 113 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Triple-net Seniors Housing Operating Outpatient Medical Non-segment / Corporate Total Year Ended December 31, 2014: Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . Resident fees and services . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 992,638 $ — 1,892,237 2,119 3,215 32,255 2,973 — $413,129 — 3,293 1,010 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . Property operating expenses . . . . . . . . . . . . . . . 1,027,866 732 1,897,571 1,266,308 417,432 136,318 $ — $1,405,767 — 1,892,237 37,667 — 7,875 677 677 3,343,546 — 1,403,358 Net operating income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on derivatives, net . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . General and administrative . . . . . . . . . . . . . . . . Transaction costs . . . . . . . . . . . . . . . . . . . . . . . . . . Loss (gain) on extinguishment of debt, net Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income taxes and income (loss) from unconsolidated entities . . . . . . . . . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . (Loss) income from unconsolidated entities . . Income from continuing operations . . . . . . . . . Income (loss) from discontinued operations . . Gain (loss) on real estate dispositions, net . . . . 1,027,134 32,135 (1,770) 273,296 — 45,146 98 8,825 631,263 64,130 275 418,199 — 16,880 383 1,437 281,114 31,050 — 152,635 — 7,512 405 — 677 353,724 — — 142,943 — 8,672 — 1,940,188 481,039 (1,495) 844,130 142,943 69,538 9,558 10,262 669,404 6,141 5,423 680,968 7,135 146,205 129,959 (3,047) (38,204) 88,708 — — 89,512 (1,827) 5,355 93,040 — 906 (504,662) — — (504,662) — — 384,213 1,267 (27,426) 358,054 7,135 147,111 Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 834,308 $ 88,708 $ 93,946 $(504,662) $ 512,300 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, 2016 December 31, 2015 December 31, 2014 Amount % Amount % Amount % Revenues: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,453,485 388,383 439,292 80.6% $3,133,327 9.1% 407,745 10.3% 318,754 81.2% $2,801,474 10.6% 305,275 8.3% 236,797 83.8% 9.1% 7.1% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,281,160 100.0% $3,859,826 100.0% $3,343,546 100.0% 114 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 % Amount December 31, 2015 % Amount Assets: United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,572,459 2,782,489 2,510,236 81.7% $23,513,498 9.6% 2,958,509 8.7% 2,551,838 81.0% 10.2% 8.8% Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,865,184 100.0% $29,023,845 100.0% 18. Income Taxes and Distributions We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of current year taxable income are also subject to a 4% federal excise tax. The main differences between net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes. Cash distributions paid to common stockholders, for federal income tax purposes, are as follows for the periods presented: Per Share: Year Ended December 31, 2016 2015 2014 Ordinary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Qualified dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term capital gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecaptured section 1250 gains . . . . . . . . . . . . . . . . . . . . . . . . . . $2.5067 0.0047 0.0573 0.4593 0.4120 $1.9134 0.0529 0.0503 0.9352 0.3482 $1.7861 — 0.8368 0.1638 0.3933 Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.4400 $3.3000 $3.1800 Our consolidated provision for income taxes is as follows for the periods presented (dollars in thousands): Year Ended December 31, 2016 2015 2014 Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,944 (34,072) $10,177 (3,726) $ 2,672 (3,939) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(19,128) $ 6,451 $(1,267) 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, 2016, as a result of acquisitions located in Canada and the United Kingdom, we were subject to foreign income taxes under the respective tax laws of these jurisdictions. The provision for income taxes for the year ended December 31, 2016 primarily relates to state taxes, foreign taxes, and taxes based on income generated by entities that are structured as taxable REIT subsidiaries. For the tax years ended December 31, 2016, 2015 and 2014, the foreign tax provision/(benefit) amount included in the consolidated provision for income taxes was ($3,315,000), $7,385,000 and ($6,069,000), respectively. 115 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A reconciliation of income tax expense, which is computed by applying the federal corporate tax rate for the years ended December 31, 2016, 2015 and 2014, to the income tax provision/(benefit) is as follows for the periods presented (dollars in thousands): Year Ended December 31, 2016 2015 2014 Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase / (decrease) in valuation allowance(1) . . . . . . . . . . . . . Tax at statutory rate on earnings not subject to federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign permanent depreciation . . . . . . . . . . . . . . . . . . . . . . . . Other differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 372,030 (2,128) $ 313,250 13,759 $ 178,862 9,133 (399,571) 9,205 1,336 (319,832) 7,500 (8,226) (189,070) 4,383 (4,575) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (19,128) $ 6,451 $ (1,267) (1) Excluding purchase price accounting. Each TRS and foreign entity subject to income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of taxable and deductible temporary differences, as well as tax attributes, are summarized as follows for the periods presented (dollars in thousands): Year Ended December 31, 2016 2015 2014 Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets and the treatment of interests and certain costs . . . . . . . . . . . . . Operating loss and interest deduction carryforwards . . . . . . . . . . . Expense accruals and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,089) 82,469 15,978 (96,838) $(30,564) 75,455 6,259 (98,966) $ (1,020) 47,528 26,191 (85,207) Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,480) $(47,816) $(12,508) We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. As required under the provisions of ASC 740, we apply the concepts on an entity-by-entity, jurisdiction-by-jurisdiction basis. With respect to the analysis of certain entities in multiple jurisdictions, a significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. 116 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On the basis of the evaluations performed as required by the codification, valuation allowances totaling $96,838,000 were recorded on U.S. taxable REIT subsidiaries as well as entities in other jurisdictions to limit the deferred tax assets to the amount that we believe is more likely that not realizable. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present (and additional weight may be given to subjective evidence such as our projections for growth). The valuation allowance rollforward is summarized as follows for the periods presented (dollars in thousands): Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions: Year Ended December 31, 2016 2015 2014 $98,966 $85,207 $71,955 Purchase price accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (2,128) — 13,759 4,119 9,133 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $96,838 $98,966 $85,207 As a result of certain acquisitions, we are subject to corporate level taxes for any related asset dispositions that may occur during the five-year period immediately after such assets were owned by a C corporation (“built-in gains tax”). The amount of income potentially subject to this special corporate level tax is generally equal to the lesser of (a) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (b) the actual amount of gain. Some but not all gains recognized during this period of time could be offset by available net operating losses and capital loss carryforwards. During the year ended December 31, 2016, 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 ten-year period. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such properties and available tax planning strategies. Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, the REIT may lease “qualified health care properties” on an arm’s-length basis to a TRS if the property is operated on behalf of such subsidiary by a person who qualifies as an “eligible independent contractor.” Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property.” A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA. Resident level rents and related operating expenses for these facilities are reported in the consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in a TRS. Certain net operating loss carryforwards could be utilized to offset taxable income in future years. Given the applicable statute of limitations, we generally are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2013 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, 2010. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to May 2012 related to entities acquired or formed in connection with acquisitions, and by HM Revenue & Customs for periods subsequent to August 2012 related to entities acquired or formed in connection with acquisitions. At December 31, 2016, we had a net operating loss (“NOL”) carryforward related to the REIT of $418,739,000. Due to our uncertainty regarding the realization of certain deferred tax assets, we have not 117 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS recorded a deferred tax asset related to NOLs generated by the REIT. These amounts can be used to offset future taxable income (and/or taxable income for prior years if an audit determines that tax is owed), if any. The REIT will be entitled to utilize NOLs and tax credit carryforwards only to the extent that REIT taxable income exceeds our deduction for dividends paid. The NOL carryforwards will expire through 2035. At December 31, 2016 and 2015, we had a net operating loss carryforward related to Canadian entities of $104,988,000, and $78,680,000, respectively. These Canadian losses have a 20-year carryforward period. At December 31, 2016 and 2015, we had a net operating loss carryforward related to United Kingdom entities of $158,156,000 and $179,598,000, respectively. These United Kingdom losses do not have a finite carryforward period. 19. Retirement Arrangements We have a Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined benefit pension plan, which provides one former executive officer with supplemental deferred retirement benefits. The SERP to receive retirement benefits that cannot be paid under our provides an opportunity for the participant tax-qualified plans because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. Benefits are based on compensation and length of service and the SERP is unfunded. Benefit payments are expected to total $4,179,000 during the next three fiscal years. We use a December 31 measurement date for the SERP. The accrued liability on our balance sheet for the SERP was $4,081,000 at December 31, 2016 ($5,474,000 at December 31, 2015). On April 13, 2014, George L. Chapman, formerly the Chairman, Chief Executive Officer and President of the Company, informed the Board of Directors that he wished to retire from the Company, effective immediately. As a result of Mr. Chapman’s retirement, general and administrative expenses for the year ended December 31, 2014 included charges of $19,688,000 related to: (i) the acceleration of $9,223,000 of deferred compensation for restricted stock; and (ii) consulting, retirement payments and other costs of $10,465,000. 118 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Quarterly Results of Operations (Unaudited) The following is a summary of our unaudited quarterly results of operations for the years ended December 31, 2016 and 2015 (in thousands, except per share data). The sum of individual quarterly amounts may not agree to the annual amounts included in the consolidated statements of income due to rounding. Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . Net income (loss) attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . Net income (loss) attributable to common stockholders per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders . . . . . . . . . . . . . . . . . . . . . . Net income attributable to common stockholders per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2016 1st Quarter 2nd Quarter 3rd Quarter(1) 4th Quarter $1,047,050 $1,076,657 $1,079,133 $1,078,321 148,969 195,474 334,910 333,044 $ $ 0.42 0.42 $ 0.55 0.54 $ 0.93 0.93 0.92 0.91 Year Ended December 31, 2015 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $ 894,177 $ 957,169 $ 978,997 $1,029,484 190,799 312,573 182,043 132,929 $ $ 0.57 0.56 $ 0.89 0.89 $ 0.52 0.52 0.38 0.37 (1) The increase in net income and amounts per share are primarily attributable to gains on sales of real estate of $162,351,000 for the third quarter as compared to gains of $1,530,000 for the second quarter. 119 WELLTOWER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. Variable Interest Entities We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be variable interest entities (“VIE”). We have concluded that we are the primary beneficiary of these VIE’s 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 VIE’s in the aggregate (in thousands): December 31, 2016 December 31, 2015 Assets Net real property owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 989,596 10,501 12,102 $453,889 8,759 8,082 Total assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,012,199 $470,730 Liabilities and equity Secured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 450,255 13,803 185,556 362,585 $147,021 7,732 70,090 245,887 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,012,199 $470,730 (1) Note that assets of the consolidated variable interest entities can only be used to settle obligations relating to such variable interest entities. Liabilities of the consolidated variable interest entities represent claims against the specific assets of the variable interest entities. 120 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. Item 9A. Controls and Procedures Disclosure Controls and Procedures An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) in a report entitled Internal Control — Integrated Framework. The scope of management’s assessment as of December 31, 2016 did not include an assessment of the internal control over financial reporting for certain acquisitions because the business combinations occurred during the year ended December 31, 2016. The acquired businesses represent 4% of total assets at December 31, 2016 and less than 1% of revenues and net operating income for the year then ended. The scope of management’s assessment on internal control over financial reporting for the year ended December 31, 2017 will include the aforementioned acquired operations. Based on this assessment, using the criteria above, management concluded that the Company’s system of internal control over financial reporting was effective as of December 31, 2016. The independent registered public accounting firm of Ernst & Young LLP, as auditors of the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended) occurred during the fourth quarter of the one-year period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 121 Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Welltower Inc. We have audited Welltower Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of Inc.’s the Treadway Commission (the COSO criteria, 2013 framework). Welltower is responsible for maintaining effective internal control over financial reporting, and for its management assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of certain acquisitions, which are included in the 2016 consolidated financial statements of Welltower Inc. and subsidiaries and aggregate to 4% of total assets as of December 31, 2016 and less than 1% of revenues and net operating income for the year then ended. Our audit of the internal control over financial reporting of Welltower Inc. also did not include an evaluation of the internal control over financial reporting of the aforementioned acquisitions. In our opinion, Welltower Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Welltower Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016 of Welltower Inc. and subsidiaries and our report dated February 22, 2017 expressed an unqualified opinion thereon. Toledo, Ohio February 22, 2017 /s/ ERNST & YOUNG LLP 122 Item 9B. Other Information None. Item 10. Directors, Executive Officers and Corporate Governance PART III The information required by this Item is incorporated herein by reference to the information under the headings “Election of Directors,” “Corporate Governance,” “Executive Officers,” and “Security Ownership of Directors and Management and Certain Beneficial Owners — Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement, which will be filed with the Securities and Exchange Commission (the “Commission”) prior to May 1, 2017. We have adopted a Code of Business Conduct and Ethics that applies to our directors, officers and employees. The code is posted on the Internet at www.welltower.com/investors/governance. Any amendment to, or waivers from, the code that relate to any officer or director of the Company will be promptly disclosed on the Internet at www.welltower.com. In addition, the Board has adopted charters for the Audit, Compensation and Nominating/Corporate Governance Committees. These charters are posted on the Internet at www.welltower.com/investors/governance. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only. Item 11. Executive Compensation The information required by this Item is incorporated herein by reference to the information under the headings “Executive Compensation” and “Director Compensation” in our definitive proxy statement, which will be filed with the Commission prior to May 1, 2017. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference to the information under the headings “Security Ownership of Directors and Management and Certain Beneficial Owners” and “Equity Compensation Plan Information” in our definitive proxy statement, which will be filed with the Commission prior to May 1, 2017. Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this Item is incorporated herein by reference to the information under the headings “Corporate Governance — Independence and Meetings” and “Security Ownership of Directors and Management and Certain Beneficial Owners — Certain Relationships and Related Transactions” in our definitive proxy statement, which will be filed with the Commission prior to May 1, 2017. Item 14. Principal Accounting Fees and Services The information required by this Item is incorporated herein by reference to the information under the heading “Ratification of the Appointment of the Independent Registered Public Accounting Firm” in our definitive proxy statement, which will be filed with the Commission prior to May 1, 2017. 123 Item 15. Exhibits and Financial Statement Schedules (a) 1. Our Consolidated Financial Statements are included in Part II, Item 8: PART IV Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets — December 31, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income — Years ended December 31, 2016, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Equity — Years ended December 31, 2016, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows — Years ended December 31, 2016, 2015 and 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 79 80 82 83 84 2. The following Financial Statement Schedules are included in Item 15(c): III — Real Estate and Accumulated Depreciation IV — Mortgage Loans on Real Estate The financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is included in Item 8 of this Annual Report on Form 10-K. 3. Exhibit Index: The information required by this item is set forth on the Exhibit Index that follows the Financial Statement Schedules to this Annual Report on Form 10-K. (b) Exhibits: The exhibits listed on the Exhibit Index are either filed with this Form 10-K or incorporated by reference in accordance with Rule 12b-32 of the Securities Exchange Act of 1934. (c) Financial Statement Schedules: Financial statement schedules are included beginning on page 126. 124 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 22, 2017 WELLTOWER INC. By: /S/ THOMAS J. DEROSA Thomas J. DeRosa, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 22, 2017 by the following persons on behalf of the Registrant and in the capacities indicated. /s/ JEFFREY H. DONAHUE** Jeffrey H. Donahue, Chairman of the Board /s/ KENNETH J. BACON** Kenneth J. Bacon, Director /s/ FRED S. KLIPSCH** Fred S. Klipsch, Director /s/ GEOFFREY G. MEYERS** Geoffrey G. Meyers, Director /s/ TIMOTHY J. NAUGHTON** Timothy J. Naughton, Director /s/ SHARON M. OSTER** Sharon M. Oster, Director JUDITH C. PELHAM** /s/ Judith C. Pelham, Director /s/ SERGIO D. RIVERA** Sergio D. Rivera, Director /s/ R. SCOTT TRUMBULL** R. Scott Trumbull, Director /s/ THOMAS J. DEROSA** Thomas J. DeRosa, Chief Executive Officer and Director (Principal Executive Officer) /s/ SCOTT A. ESTES** Scott A. Estes, Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ PAUL D. NUNGESTER, JR.** Paul D. Nungester, Jr., Senior Vice President and Controller (Principal Accounting Officer) **By: /s/ THOMAS J. DEROSA Thomas J. DeRosa, Attorney-in-Fact 125 Welltower Inc. Schedule III Real Estate and Accumulated Depreciation December 31, 2016 (Dollars in thousands) Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Triple-net: Abilene, TX . . . . . . . . . . . . . Abilene, TX . . . . . . . . . . . . . Aboite Twp, IN . . . . . . . . . . Agawam, MA . . . . . . . . . . . Agawam, MA . . . . . . . . . . . Agawam, MA . . . . . . . . . . . Agawam, MA . . . . . . . . . . . Agawam, MA . . . . . . . . . . . Albertville, AL . . . . . . . . . . . Alexandria, IN . . . . . . . . . . . Ames, IA . . . . . . . . . . . . . . . Anderson, SC . . . . . . . . . . . . Ankeny, IA . . . . . . . . . . . . . Apple Valley, CA . . . . . . . . Asheboro, NC . . . . . . . . . . . Asheville, NC . . . . . . . . . . . Asheville, NC . . . . . . . . . . . Aspen Hill, MD . . . . . . . . . . Atchison, KS . . . . . . . . . . . . Atlanta, GA . . . . . . . . . . . . . Aurora, OH . . . . . . . . . . . . . Aurora, CO . . . . . . . . . . . . . Aurora, CO . . . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . . Avon, IN . . . . . . . . . . . . . . . Avon, IN . . . . . . . . . . . . . . . Avon Lake, OH . . . . . . . . . . Ayer, MA . . . . . . . . . . . . . . . Baldwin City, KS . . . . . . . . . Bartlesville, OK . . . . . . . . . . Beachwood, OH . . . . . . . . . . Bellingham, WA . . . . . . . . . Benbrook, TX . . . . . . . . . . . Bend, OR . . . . . . . . . . . . . . . Bethel Park, PA . . . . . . . . . . Beverly Hills, CA . . . . . . . . . . . . . . . . Bexleyheath, UKI Birmingham, UKG . . . . . . . Birmingham, UKG . . . . . . . Birmingham, UKG . . . . . . . Birmingham, UKG . . . . . . . Bloomington, IN . . . . . . . . . Boardman, OH . . . . . . . . . . . Bowling Green, KY . . . . . . . Bradenton, FL . . . . . . . . . . . Bradenton, FL . . . . . . . . . . . Braintree, MA . . . . . . . . . . . Braintree, UKH . . . . . . . . . . $ — $ — — — — — — — 1,956 — — — — 10,250 — — — — — 7,294 — — — 18,076 — — — — — — — 8,272 — — — — — — — — — — — — — — — — $ 950 990 1,770 880 1,230 930 920 920 170 190 330 710 1,129 480 290 204 280 — 140 2,058 1,760 2,600 2,440 880 1,830 900 790 — 190 100 1,260 1,500 1,550 1,210 1,700 6,000 3,750 1,647 1,591 1,462 1,184 670 1,200 3,800 252 480 170 — 20,987 8,187 19,930 16,112 13,618 15,304 10,661 10,562 6,203 6,491 8,870 6,290 10,270 16,639 5,032 3,489 1,955 9,008 5,610 14,914 14,148 5,906 28,172 9,520 14,470 19,444 10,421 22,074 4,810 1,380 23,478 19,861 13,553 9,181 16,007 13,385 10,807 14,853 19,092 9,056 10,085 17,423 12,800 26,700 3,298 9,953 7,157 13,296 $ 1,409 496 3,483 7,193 2,393 2,524 1,826 1,811 1,423 408 1,596 3,032 255 3,770 1,897 1,697 932 1,687 158 11,207 2,517 5,212 9,071 5,113 2,719 1,201 2,195 3,464 138 763 9,511 4,423 2,065 410 3,399 738 598 674 853 417 454 661 3,447 5,751 1,838 1,187 8,381 818 2014 2014 2010 2002 2011 2011 2011 2011 2010 2014 2010 2003 2016 2010 2003 1999 2003 2011 2015 1997 2011 2006 2006 1999 2010 2014 2011 2011 2015 1996 2001 2010 2011 2015 2007 2014 2014 2015 2015 2015 2015 2015 2008 2008 1996 2012 1997 2014 1998 6565 Central Park Boulevard 1985 1250 East N 10th Street 2008 611 W County Line Rd South 1993 1200 Suffield St. 1975 61 Cooper Street 1970 55 Cooper Street 1985 464 Main Street 1967 65 Cooper Street 1999 151 Woodham Dr. 1982 1912 South Park Avenue 1999 1325 Coconino Rd. 1986 311 Simpson Rd. 2012 1275 SW State Street 1999 11825 Apple Valley Rd. 1998 514 Vision Dr. 1999 4 Walden Ridge Dr. 1992 308 Overlook Rd. 1988 3227 Bel Pre Road 2001 1301 N 4th St. 1999 1460 S Johnson Ferry Rd. 2002 505 S. Chillicothe Rd 1988 14101 E. Evans Ave. 2007 14211 E. Evans Ave. 1998 12429 Scofield Farms Dr. 2004 182 S Country RD. 550E 2013 10307 E. CR 100 N 2001 345 Lear Rd. 1988 400 Groton Road 2000 321 Crimson Ave 1995 5420 S.E. Adams Blvd. 1990 3800 Park East Drive 1996 4415 Columbine Dr. 1984 4242 Bryant Irvin Road 1981 1801 NE Lotus Drive 2009 5785 Baptist Road 2000 220 N Clark Drive 1996 35 West Street 2010 Clinton Street, Winson Green 2010 Braymoor Road, Tile Cross 2010 Clinton Street, Winson Green 1997 122 Tile Cross Road, Garretts Green 2015 363 S. Fieldstone Boulevard 2008 8049 South Ave. 1992 1300 Campbell Lane 1995 6101 Pointe W. Blvd. 2000 2800 60th Avenue West 1968 1102 Washington St. 2009 Meadow Park Tortoiseshell Way $ 950 990 1,770 880 1,230 930 920 920 176 190 330 710 1,129 486 290 204 280 — 140 2,080 1,760 2,600 2,440 885 1,830 900 790 — 190 100 1,260 1,507 1,550 1,210 1,700 6,000 3,750 1,647 1,591 1,462 1,184 670 1,200 3,800 252 480 170 — $ 21,172 8,987 21,531 18,246 14,211 15,596 10,697 10,607 6,477 6,491 8,870 6,709 10,270 16,801 5,197 3,489 2,306 11,402 5,618 16,035 14,254 13,821 28,172 10,731 14,470 19,444 16,243 22,077 4,850 1,380 23,478 20,175 14,701 9,206 16,007 13,385 10,807 14,853 19,092 9,056 10,085 17,423 12,800 26,849 3,298 9,953 8,447 13,296 $ 185 800 1,601 2,134 593 292 36 45 280 — — 419 — 168 165 — 351 2,394 8 1,143 106 7,915 — 1,216 — — 5,822 3 40 — — 321 1,148 25 — — — — — — — — — 149 — — 1,290 — 126 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Brandon, MS . . . . . . . . . . . . Brecksville, OH . . . . . . . . . . Bremerton, WA . . . . . . . . . . Bremerton, WA . . . . . . . . . . Bremerton, WA . . . . . . . . . . Brentwood, UKH . . . . . . . . . Brick, NJ . . . . . . . . . . . . . . . Brick, NJ . . . . . . . . . . . . . . . Brick, NJ . . . . . . . . . . . . . . . Bridgewater, NJ . . . . . . . . . . Bridgewater, NJ . . . . . . . . . . Bridgewater, NJ . . . . . . . . . . Broadview Heights, OH . . . . Brookfield, WI . . . . . . . . . . . Brooks, AB . . . . . . . . . . . . . Brookville, IN . . . . . . . . . . . Burleson, TX . . . . . . . . . . . . Burleson, TX . . . . . . . . . . . . Burlington, NC . . . . . . . . . . Burlington, NC . . . . . . . . . . Burlington, NJ . . . . . . . . . . . Burlington, NJ . . . . . . . . . . . Burlington, WA . . . . . . . . . . Burnaby, BC . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . . Canton, MA . . . . . . . . . . . . . Canton, OH . . . . . . . . . . . . . Cape Coral, FL . . . . . . . . . . . Cape Coral, FL . . . . . . . . . . . Cape May Court House, NJ . . . . . . . . . . . . . . . . . . . Carmel, IN . . . . . . . . . . . . . . Carrollton, TX . . . . . . . . . . . Carrollton, TX . . . . . . . . . . . Carson City, NV . . . . . . . . . Cary, NC . . . . . . . . . . . . . . . Castleton, IN . . . . . . . . . . . . Cedar Grove, NJ . . . . . . . . . . . . . . . . . Centreville, MD(2) Chapel Hill, NC . . . . . . . . . . Charles Town, WV . . . . . . . Charleston, WV . . . . . . . . . . Chatham, VA . . . . . . . . . . . . Chelmsford, MA . . . . . . . . . Chester, VA . . . . . . . . . . . . . Chickasha, OK . . . . . . . . . . . Cinnaminson, NJ . . . . . . . . . Citrus Heights, CA . . . . . . . . Claremore, OK . . . . . . . . . . . Clarksville, TN . . . . . . . . . . Clayton, NC . . . . . . . . . . . . . Cleburne, TX . . . . . . . . . . . . Clevedon, UKK . . . . . . . . . . Cloquet, MN . . . . . . . . . . . . Cobham, UKJ . . . . . . . . . . . Colchester, CT . . . . . . . . . . . Colleyville, TX . . . . . . . . . . Colorado Springs, CO . . . . . — — — — — 47,467 — — — — — — — — 1,971 — — — — — — — — 8,082 16,716 27,724 — — — 8,716 — — — — — — — — — — — — — — — — — 14,252 — — — — — — — — — — 1,220 990 390 830 590 8,537 1,290 1,170 690 1,850 1,730 1,800 920 1,300 376 300 670 3,150 280 460 1,700 1,170 3,860 7,623 2,341 4,569 820 300 530 760 1,440 1,700 4,280 — 520 1,500 920 2,850 600 354 230 440 320 1,040 1,320 85 860 2,300 155 330 520 520 2,838 340 9,808 980 1,050 4,280 10,241 19,353 2,210 10,420 2,899 45,869 25,247 17,372 17,125 3,050 48,201 31,810 12,400 12,830 4,951 13,461 13,985 10,437 4,297 5,467 12,554 19,205 31,722 13,844 42,768 70,199 8,201 2,098 3,281 18,868 17,002 19,491 31,444 — 8,238 4,350 15,137 27,737 14,602 2,646 22,834 17,575 14,039 10,951 18,127 1,395 6,663 31,876 1,427 2,292 15,733 5,369 16,927 4,660 24,991 4,860 17,082 62,168 10,241 19,353 2,354 11,370 2,912 45,869 25,907 18,681 22,607 3,087 49,469 32,362 14,793 12,830 5,103 13,461 14,330 11,013 5,004 5,467 13,036 19,377 31,805 14,270 44,105 72,358 8,464 2,098 3,281 18,868 18,675 19,491 32,305 19,549 8,488 5,336 15,137 27,757 14,843 3,429 22,896 17,879 14,039 12,450 18,127 1,395 6,820 32,465 7,557 2,292 15,733 5,369 16,927 4,780 24,991 5,392 17,082 62,168 1,220 990 390 830 590 8,537 1,290 1,184 692 1,850 1,752 1,800 920 1,300 387 300 670 3,150 280 460 1,700 1,170 3,860 7,858 2,413 4,709 820 300 530 760 1,440 1,700 4,280 2,010 520 1,500 920 2,850 600 354 230 440 320 1,040 1,320 85 860 2,300 155 330 520 520 2,838 340 9,808 980 1,050 4,280 — — 144 950 13 — 660 1,323 5,484 37 1,289 552 2,393 — 164 — 345 576 707 — 482 172 84 660 1,408 2,300 263 — — — 1,673 — 861 21,559 250 986 — 20 241 783 62 304 — 1,499 — — 157 589 6,130 — — — — 120 — 532 — — 127 1,730 1,185 609 1,982 221 — 3,649 3,038 2,925 1,485 7,660 4,524 5,414 1,091 306 794 2,159 738 1,798 2,012 2,388 3,012 1,518 869 2,549 4,144 5,743 1,016 1,318 2,273 1,232 872 2,510 133 731 2,441 970 4,438 2,402 1,348 3,471 2,726 936 4,016 1,177 766 1,242 7,280 1,223 1,104 912 1,379 1,041 700 2,232 1,061 — 2,132 2010 2014 2006 2010 2014 2016 2011 2010 2010 2004 2010 2011 2001 2012 2014 2014 2011 2012 2003 2003 2011 2011 2015 2014 2014 2014 2002 1998 2002 2012 2014 2015 2013 2014 2013 1998 2014 2011 2011 2002 2011 2011 2014 2003 2014 1996 2011 2010 1996 1998 2014 2006 2014 2011 2013 2011 2016 2015 1999 140 Castlewoods Blvd 2011 8757 Brecksville Road 1999 3231 Pine Road 1984 3201 Pine Road NE 1997 3210 Rickey Road 2013 London Road 2000 458 Jack Martin Blvd. 1998 515 Jack Martin Blvd 1999 1594 Route 88 1970 875 Route 202/206 North 1999 2005 Route 22 West 2001 680 US-202/206 North 1984 2801 E. Royalton Rd. 2013 1185 Davidson Road 2000 951 Cassils Road West 1987 11049 State Road 101 1988 300 Huguley Boulevard 2014 621 Old Highway 1187 2000 3619 S. Mebane St. 1997 3615 S. Mebane St. 1965 115 Sunset Road 1994 2305 Rancocas Road 2001 400 Gilkey Road 2006 7195 Canada Way 1971 1729-90th Avenue SW 2001 500 Midpark Way SE 1993 One Meadowbrook Way 1998 1119 Perry Dr., N.W. 2000 911 Santa Barbara Blvd. 2009 831 Santa Barbara Boulevard 1990 144 Magnolia Drive 2015 12315 Pennsylvania Street 2010 2105 North Josey Lane 2016 2645 East Trinity Mills Road 1997 1111 W. College Parkway 1996 111 MacArthur 2013 8405 Clearvista Lake 1970 536 Ridge Road 1978 205 Armstrong Avenue 1997 100 Lanark Rd. 1997 219 Prospect Ave 1998 1000 Association Drive, North Gate Business Park 2009 100 Rorer Street 1997 4 Technology Dr. 2009 12001 Iron Bridge Road 1996 801 Country Club Rd. 1965 1700 Wynwood Drive 1997 7418 Stock Ranch Rd. 1996 1605 N. Hwy. 88 1998 2183 Memorial Dr. 2013 84 Johnson Estate Road 2007 402 S Colonial Drive 1994 18/19 Elton Road 2006 705 Horizon Circle 2013 Redhill Road 1986 59 Harrington Court 2013 8100 Precinct Line Road 2008 1605 Elm Creek View Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Colorado Springs, CO . . . . . Colts Neck, NJ . . . . . . . . . . . Columbia, TN . . . . . . . . . . . Columbia, SC . . . . . . . . . . . . Columbia Heights, MN . . . . Columbus, IN . . . . . . . . . . . . Concord, NC . . . . . . . . . . . . Concord, NH . . . . . . . . . . . . Concord, NH . . . . . . . . . . . . Congleton, UKD . . . . . . . . . Conroe, TX . . . . . . . . . . . . . Coppell, TX . . . . . . . . . . . . . Coventry, UKG . . . . . . . . . . Crawfordsville, IN . . . . . . . . Crown Point, IN . . . . . . . . . . Dallas, OR . . . . . . . . . . . . . . Danville, VA . . . . . . . . . . . . Danville, VA . . . . . . . . . . . . Daphne, AL . . . . . . . . . . . . . Dedham, MA . . . . . . . . . . . . Denton, TX . . . . . . . . . . . . . Derby, UKF . . . . . . . . . . . . . Dover, DE . . . . . . . . . . . . . . Dresher, PA . . . . . . . . . . . . . . . . . . . . . . . Dundalk, MD(2) Durham, NC . . . . . . . . . . . . . Dyer, IN . . . . . . . . . . . . . . . . Eagan, MN . . . . . . . . . . . . . . East Brunswick, NJ . . . . . . . East Norriton, PA . . . . . . . . . Eastbourne, UKJ . . . . . . . . . Eden, NC . . . . . . . . . . . . . . . Edmond, OK . . . . . . . . . . . . Edmond, OK . . . . . . . . . . . . Elizabeth City, NC . . . . . . . . Emeryville, CA . . . . . . . . . . Englewood, NJ . . . . . . . . . . . Englishtown, NJ . . . . . . . . . . Epsom, UKJ . . . . . . . . . . . . . Eugene, OR . . . . . . . . . . . . . Eureka, KS . . . . . . . . . . . . . . Everett, WA . . . . . . . . . . . . . Fairfield, CA . . . . . . . . . . . . Fairhope, AL . . . . . . . . . . . . Fall River, MA . . . . . . . . . . . Fanwood, NJ . . . . . . . . . . . . Faribault, MN . . . . . . . . . . . Farnborough, UKJ . . . . . . . . Fayetteville, PA . . . . . . . . . . Fayetteville, NY . . . . . . . . . . Findlay, OH . . . . . . . . . . . . . Fishers, IN . . . . . . . . . . . . . . Florence, NJ . . . . . . . . . . . . . Florence, AL . . . . . . . . . . . . Flourtown, PA . . . . . . . . . . . Flower Mound, TX . . . . . . . Folsom, CA . . . . . . . . . . . . . Forest City, NC . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — 17,000 — — — — — — — — — — 39,189 — — — — — — — — — — — — — — 6,879 — — — — 1,730 780 341 2,120 825 610 550 1,760 720 2,036 980 1,550 1,962 720 920 410 410 240 2,880 1,360 1,760 — 600 2,060 1,770 1,476 1,800 2,260 1,380 1,200 4,071 390 410 1,810 200 2,560 930 690 20,159 800 50 1,400 1,460 570 620 2,850 780 2,036 2,150 410 200 1,500 300 353 1,800 1,800 — 320 25,493 14,733 2,295 4,860 14,175 3,190 3,921 43,179 3,041 5,120 7,771 8,386 13,830 17,239 20,044 9,427 3,954 8,436 8,670 9,830 8,305 — 22,266 40,236 32,047 10,659 25,061 31,643 34,229 28,129 24,438 4,877 8,388 14,849 2,760 57,491 4,514 12,520 34,803 5,822 3,950 5,476 14,040 9,119 5,829 55,175 11,539 5,737 32,951 3,962 1,800 14,500 2,978 13,049 14,830 8,414 33,600 4,497 26,186 15,729 2,295 10,569 14,338 3,190 3,976 43,785 3,381 5,120 7,771 8,432 13,830 18,665 20,044 10,428 4,676 8,436 8,862 9,830 8,395 8,260 22,357 41,210 32,831 12,855 25,061 31,647 34,908 29,454 24,438 4,877 8,388 15,955 4,771 58,052 4,531 13,583 34,803 5,857 3,990 5,476 15,581 9,165 10,685 56,143 11,590 5,737 34,753 4,462 1,800 14,500 2,978 13,217 15,066 8,451 32,018 4,497 1,730 1,028 341 2,120 825 610 550 1,760 720 2,036 980 1,550 1,962 720 920 410 410 240 2,880 1,360 1,760 2,282 600 2,083 1,770 1,476 1,800 2,260 1,380 1,262 4,071 390 410 1,810 200 2,560 930 768 20,159 800 50 1,400 1,460 570 620 2,850 780 2,036 2,150 410 200 1,500 300 385 1,800 1,800 1,582 320 693 1,244 — 5,709 163 — 55 606 340 — — 46 — 1,426 — 1,000 722 — 192 — 90 10,542 91 997 784 2,196 — 4 679 1,387 — — — 1,106 2,011 561 17 1,141 — 35 40 — 1,541 46 4,856 968 50 — 1,802 500 — — — 200 236 37 — — 128 396 2,613 1,112 4,232 1,980 588 1,604 6,683 643 284 1,507 822 646 1,149 852 414 1,744 558 1,119 4,191 1,276 276 3,494 6,361 5,091 10,667 884 954 4,842 4,582 1,483 1,816 1,099 1,048 2,040 3,683 797 2,270 — 254 111 2,558 5,898 1,152 4,960 7,694 351 309 1,267 1,759 933 2,724 1,191 2,888 2,436 1,014 3,087 1,691 2016 2010 1999 2003 2011 2010 2003 2011 2011 2014 2009 2012 2015 2014 2015 2015 2003 2014 2012 2002 2010 2014 2011 2010 2011 1997 2015 2015 2011 2010 2014 2003 2012 2014 1998 2014 2011 2010 2016 2015 2015 1999 2002 2012 1996 2011 2015 2014 2015 2001 1997 2010 2002 2010 2011 2011 2013 2003 2016 2818 Grand Vista Circle 2002 3 Meridian Circle 1999 5011 Trotwood Ave. 2000 731 Polo Rd. 2009 3807 Hart Boulevard 1998 2564 Foxpointe Dr. 1997 2452 Rock Hill Church Rd. 1994 239 Pleasant Street 1926 227 Pleasant Street 1994 Rood Hill 2010 903 Longmire Road 2013 1530 East Sandy Lake Road 2014 Banner Lane, Tile Hill 2013 517 Concord Road 2015 1555 South Main Street 1972 664 SE Jefferson 1998 149 Executive Ct. 1996 508 Rison Street 2001 27440 County Road 13 1996 10 CareMatrix Dr. 2011 2125 Brinker Rd 2015 Rykneld Road 1984 1080 Silver Lake Blvd. 2001 1405 N. Limekiln Pike 1978 7232 German Hill Road 1999 4434 Ben Franklin Blvd. 2015 1532 Calumet Avenue 2004 3810 Alder Avenue 1998 606 Cranbury Rd. 1988 2101 New Hope St 1999 Carew Road 1998 314 W. Kings Hwy. 2001 15401 North Pennsylvania Avenue 1985 1225 Lakeshore Drive 1999 400 Hastings Lane 2010 1440 40th Street 1966 333 Grand Avenue 1997 49 Lasatta Ave 2014 450-458 Reigate Road 1990 4550 West Amazon Drive 1994 1820 E River St 1999 2015 Lake Heights Dr. 1998 3350 Cherry Hills St. 1987 50 Spring Run Road 1973 1748 Highland Ave. 1982 295 South Ave. 2003 828 1st Street NE 1980 Bruntile Close, Reading Road 1991 6375 Chambersburg Road 1997 5125 Highbridge St. 1997 725 Fox Run Rd. 2000 9745 Olympia Dr. 1999 901 Broad St. 1999 3275 County Road 47 1908 350 Haws Lane 2012 4141 Long Prairie Road 2009 330 Montrose Drive 1999 493 Piney Ridge Rd. Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Fort Ashby, WV . . . . . . . . . . Fort Collins, CO . . . . . . . . . . Fort Wayne, IN . . . . . . . . . . Fort Worth, TX . . . . . . . . . . Franconia, NH . . . . . . . . . . . Fredericksburg, VA . . . . . . . Fredericksburg, VA . . . . . . . Fredonia, KS . . . . . . . . . . . . Fremont, CA . . . . . . . . . . . . Fresno, CA . . . . . . . . . . . . . . Gardner, KS . . . . . . . . . . . . . Gardnerville, NV . . . . . . . . . Gastonia, NC . . . . . . . . . . . . Gastonia, NC . . . . . . . . . . . . Gastonia, NC . . . . . . . . . . . . Georgetown, TX . . . . . . . . . Gettysburg, PA . . . . . . . . . . Gig Harbor, WA . . . . . . . . . Glastonbury, CT . . . . . . . . . Granbury, TX . . . . . . . . . . . . Granbury, TX . . . . . . . . . . . . Grand Ledge, MI . . . . . . . . . Granger, IN . . . . . . . . . . . . . Grapevine, TX . . . . . . . . . . . Grass Valley, CA . . . . . . . . . Greenfield, WI . . . . . . . . . . . Greensboro, NC . . . . . . . . . . Greensboro, NC . . . . . . . . . . Greenville, SC . . . . . . . . . . . Greenville, NC . . . . . . . . . . . Greenwood, IN . . . . . . . . . . Groton, CT . . . . . . . . . . . . . . Haddonfield, NJ . . . . . . . . . . Hamburg, PA . . . . . . . . . . . . Hamilton, NJ . . . . . . . . . . . . Hanford, UKG . . . . . . . . . . . Harrow, UKI . . . . . . . . . . . . Hatboro, PA . . . . . . . . . . . . . Hatfield, UKH . . . . . . . . . . . Haverford, PA . . . . . . . . . . . Hemet, CA . . . . . . . . . . . . . . Herne Bay, UKJ . . . . . . . . . . Hiawatha, KS . . . . . . . . . . . . Hickory, NC . . . . . . . . . . . . . High Point, NC . . . . . . . . . . High Point, NC . . . . . . . . . . High Point, NC . . . . . . . . . . High Point, NC . . . . . . . . . . Highland Park, IL . . . . . . . . Highlands Ranch, CO . . . . . Hinckley, UKF . . . . . . . . . . . Hindhead, UKJ . . . . . . . . . . Hockessin, DE . . . . . . . . . . . Holton, KS . . . . . . . . . . . . . . Howell, NJ . . . . . . . . . . . . . . Hutchinson, KS . . . . . . . . . . Indianapolis, IN . . . . . . . . . . Indianapolis, IN . . . . . . . . . . Indianapolis, IN . . . . . . . . . . Indianapolis, IN . . . . . . . . . . — — — — — — — — 18,517 — — 11,967 — — — — — 4,867 — — — — — — 4,193 — — — — — — — — — — — — — — — — — — — — — — — — — — 38,700 — — 9,177 — — — — — 330 3,680 170 450 360 1,000 1,130 40 3,400 2,500 200 1,143 470 310 400 200 590 1,560 1,950 2,040 2,550 1,150 1,670 — 260 — 330 560 310 290 1,550 2,430 — 840 440 1,382 7,402 — 2,924 1,880 870 1,900 40 290 560 370 330 430 2,820 940 2,159 17,852 1,120 40 1,066 600 495 255 870 890 19,566 58,608 8,232 13,615 11,320 20,000 23,202 460 25,300 35,800 2,800 10,831 6,129 3,096 5,029 2,100 8,913 15,947 9,532 30,670 2,940 16,286 21,280 — 7,667 15,204 2,970 5,507 4,750 4,393 22,770 19,941 — 10,543 4,469 9,829 8,266 28,112 7,527 33,993 3,405 24,353 4,210 987 4,443 2,185 3,395 4,143 15,832 3,721 4,194 48,645 6,308 7,460 21,577 10,590 6,287 2,473 14,688 18,781 19,694 58,608 8,232 18,701 11,390 21,200 23,202 495 28,447 35,918 2,858 11,885 6,129 3,118 5,149 2,100 9,029 16,177 11,199 30,928 3,420 21,405 23,681 17,583 7,925 14,314 3,524 6,520 4,750 4,561 22,851 20,852 16,363 10,758 4,469 9,829 8,266 29,858 7,527 34,977 3,405 24,353 4,232 1,219 5,236 2,595 3,423 4,143 16,021 8,704 4,194 48,645 7,542 7,472 21,956 10,784 28,852 14,596 14,688 18,781 330 3,680 170 450 360 1,000 1,130 40 3,456 2,500 200 1,164 470 310 400 200 590 1,583 2,360 2,040 2,550 1,150 1,670 2,220 260 890 330 560 310 290 1,550 2,430 520 840 440 1,382 7,402 — 2,924 1,883 870 1,900 40 290 560 370 330 430 2,820 940 2,159 17,852 1,120 40 1,070 600 495 255 870 890 128 — — 5,086 70 1,200 — 35 3,203 118 58 1,075 — 22 120 — 116 253 2,077 258 480 5,119 2,401 19,803 258 — 554 1,013 — 168 81 911 16,883 215 — — — 1,746 — 987 — — 22 232 793 410 28 — 189 4,983 — — 1,234 12 383 194 22,565 12,123 — — 129 2,983 2,003 2,167 3,016 1,805 6,351 1,387 20 8,469 7,701 85 8,531 2,245 1,212 1,901 1,077 1,568 3,453 1,724 4,646 476 3,150 3,773 659 643 1,285 1,343 2,467 1,704 1,666 3,736 3,532 790 1,932 1,774 887 476 4,501 684 5,374 847 2,464 123 604 1,960 1,032 1,291 1,549 1,714 1,879 418 — 497 203 3,507 3,453 10,370 5,170 945 1,104 2011 2015 2006 2010 2011 2005 2014 2015 2005 2008 2015 1998 2003 2003 2003 1997 2011 2010 2011 2011 2012 2010 2010 2013 2013 2013 2003 2003 2004 2003 2010 2011 2011 2011 2001 2013 2014 2011 2013 2010 2007 2013 2015 2003 2003 2003 2003 2003 2011 2002 2013 2016 2014 2015 2010 2004 2006 2006 2014 2014 1980 Diane Drive, Box 686 2007 4750 Pleasant Oak Drive 2006 2626 Fairfield Ave. 2011 425 Alabama Ave. 1971 93 Main Street 1999 3500 Meekins Dr. 2010 140 Brimley Drive 1991 2111 E Washington St 1987 2860 Country Dr. 1991 7173 North Sharon Avenue 2000 869 Juniper Terrace 1999 1565-A Virginia Ranch Rd. 1998 1680 S. New Hope Rd. 1994 1717 Union Rd. 1996 1750 Robinwood Rd. 1997 2600 University Dr., E. 1987 867 York Road 1994 3213 45th St. Court NW 1966 72 Salmon Brook Drive 2009 100 Watermark Boulevard 1996 916 East Highway 377 1999 4775 Village Dr 2009 6330 North Fir Rd 2014 4545 Merlot Drive 2001 415 Sierra College Drive 1983 5017 South 110th Street 1996 5809 Old Oak Ridge Rd. 1997 4400 Lawndale Dr. 1997 23 Southpointe Dr. 1998 2715 Dickinson Ave. 2007 2339 South SR 135 1975 1145 Poquonnock Road 2015 132 Warwick Road 1966 125 Holly Road 1998 1645 Whitehorse- Mercerville Rd. 2012 Bankhouse Road 2001 177 Preston Hill 1996 3485 Davisville Road 2012 St Albans Road East 2000 731 Old Buck Lane 1996 25818 Columbia St. 2011 165 Reculver Road 1996 400 Kansas Ave 1994 2530 16th St. N.E. 2000 1568 Skeet Club Rd. 1999 1564 Skeet Club Rd. 1994 201 W. Hartley Dr. 1998 1560 Skeet Club Rd. 2012 1651 Richfield Avenue 1999 9160 S. University Blvd. 2013 Tudor Road 2012 Portsmouth Road 1992 100 Saint Claire Drive 1996 410 Juniper Dr 2007 100 Meridian Place 1997 2416 Brentwood 1981 8616 W. Tenth St. 1981 8616 W.Tenth St. 2014 1635 N Arlington Avenue 2014 5404 Georgetown Road Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Jacksonville, FL . . . . . . . . . . Jacksonville, FL . . . . . . . . . . Kansas City, KS . . . . . . . . . . Kenner, LA . . . . . . . . . . . . . Kennett Square, PA . . . . . . . Kent, WA . . . . . . . . . . . . . . . Kingston upon Thames, UKI . . . . . . . . . . . . . . . . . Kirkland, WA . . . . . . . . . . . Kirkstall, UKE . . . . . . . . . . . Kokomo, IN . . . . . . . . . . . . . Lafayette, LA . . . . . . . . . . . . Lafayette, CO . . . . . . . . . . . . Lafayette, IN . . . . . . . . . . . . Lakeway, TX . . . . . . . . . . . . Lakewood, CO . . . . . . . . . . . Lakewood Ranch, FL . . . . . . Lakewood Ranch, FL . . . . . . Lancaster, CA . . . . . . . . . . . Langhorne, PA . . . . . . . . . . . . . . . . . . . . . . LaPlata, MD(2) Las Vegas, NV . . . . . . . . . . . Lawrence, KS . . . . . . . . . . . Lecanto, FL . . . . . . . . . . . . . Lee, MA . . . . . . . . . . . . . . . . Leeds, UKE . . . . . . . . . . . . . Leicester, UKF . . . . . . . . . . . Lenoir, NC . . . . . . . . . . . . . . Lethbridge, AB . . . . . . . . . . Lexana, KS . . . . . . . . . . . . . Lexington, NC . . . . . . . . . . . Libertyville, IL . . . . . . . . . . . Lichfield, UKG . . . . . . . . . . Lillington, NC . . . . . . . . . . . Lillington, NC . . . . . . . . . . . Lincoln, NE . . . . . . . . . . . . . Linwood, NJ . . . . . . . . . . . . Litchfield, CT . . . . . . . . . . . Little Neck, NY . . . . . . . . . . Livermore, CA . . . . . . . . . . . London, UKI . . . . . . . . . . . . Longview, TX . . . . . . . . . . . Longwood, FL . . . . . . . . . . . Louisburg, KS . . . . . . . . . . . Louisville, KY . . . . . . . . . . . Lowell, MA . . . . . . . . . . . . . Lowell, MA . . . . . . . . . . . . . Loxley, UKE . . . . . . . . . . . . Lutherville, MD . . . . . . . . . . Lynchburg, VA . . . . . . . . . . Macungie, PA . . . . . . . . . . . Mahwah, NJ . . . . . . . . . . . . . Manalapan, NJ . . . . . . . . . . . Manassas, VA . . . . . . . . . . . Mankato, MN . . . . . . . . . . . . Mansfield, TX . . . . . . . . . . . Manteca, CA . . . . . . . . . . . . Marietta, PA . . . . . . . . . . . . . Marion, IN . . . . . . . . . . . . . . — — — — — — 40,799 — — — — — — — — — — 9,561 — — — — — — — — — 1,469 — — — — — — — — — — — — — — — — — — — — — — — — — 12,512 — 5,878 — — — — 700 1,100 1,050 940 33,063 1,880 2,437 710 1,928 1,420 670 — 2,160 650 1,000 700 1,350 700 580 250 200 290 1,974 3,060 190 1,214 480 200 6,500 1,382 470 500 390 800 1,240 3,350 4,100 — 610 1,260 280 490 1,070 680 1,369 1,100 340 960 — 900 750 1,460 660 1,300 1,050 720 — — 20,116 10,036 22,946 20,318 46,696 4,315 9,414 16,044 10,483 20,192 16,833 — 28,091 6,714 22,388 15,295 24,881 19,068 23,420 8,716 6,900 18,135 13,239 24,410 3,748 2,750 1,770 3,900 40,024 30,324 17,579 16,451 13,807 21,984 17,908 38,461 24,996 — 5,520 6,445 4,320 10,010 13,481 3,378 15,668 19,786 16,114 29,033 — 22,624 7,446 32,104 5,251 12,125 13,633 12,750 25,231 26,381 20,116 10,364 23,206 30,788 46,696 4,998 9,414 16,044 10,509 20,192 16,833 22,840 28,140 8,702 22,388 15,907 25,021 19,534 23,420 8,716 6,900 19,061 13,239 24,410 4,389 2,835 1,865 4,915 40,024 30,324 17,579 16,451 13,902 22,925 28,864 39,689 24,996 15,818 5,520 6,445 4,340 12,778 13,650 3,422 15,668 21,461 16,114 29,089 27,249 22,971 7,976 32,117 5,251 13,679 13,633 13,886 750 — 700 1,100 1,083 940 33,063 1,880 2,437 710 1,928 1,420 670 5,142 2,160 650 1,000 712 1,350 700 580 250 200 290 1,974 3,060 190 1,251 480 200 6,500 1,382 470 500 390 838 1,254 3,357 4,100 7,439 610 1,260 280 490 1,070 680 1,369 1,100 340 960 1,605 900 750 1,460 660 1,312 1,050 720 25,981 26,381 — 328 293 10,470 — 683 — — 25 — — 27,982 49 1,988 — 625 140 466 — — — 926 — — 641 122 95 1,015 — — — — 95 979 10,969 1,235 — 23,257 — — 20 2,768 169 44 — 1,675 — 56 28,854 347 530 13 — 1,566 — 1,136 130 330 345 579 8,536 3,604 6,892 — 1,673 852 1,030 4,053 859 873 1,796 2,086 995 2,646 3,835 4,014 3,108 3,341 1,019 2,378 7,491 575 2,569 1,636 221 57 1,895 6,270 1,365 1,089 958 2,424 3,685 3,283 6,221 1,374 105 1,427 982 119 4,245 2,284 701 1,573 3,285 1,011 4,478 1,117 3,195 2,706 965 1,373 4,520 509 857 2013 2013 2015 1998 2010 2007 2016 2003 2013 2014 2006 2015 2015 2007 2014 2011 2012 2010 2011 2011 2011 2012 2004 2002 2015 2012 2003 2014 2015 2002 2011 2015 2014 2014 2010 2010 2010 2010 2014 2015 2006 2011 2015 2005 2011 2011 2013 2011 2014 2011 2012 2011 2003 2015 2006 2005 2015 2014 2014 5939 Roosevelt Boulevard 2014 4000 San Pablo Parkway 2015 8900 Parallel Parkway 2000 1600 Joe Yenni Blvd 2008 301 Victoria Gardens Dr. 2000 24121 116th Avenue SE 2014 Coombe Lane West 1996 6505 Lakeview Dr. 2009 29 Broad Lane 2014 2200 S. Dixon Rd 1993 204 Energy Parkway 2015 329 Exempla Circle 2014 2402 South Street 2011 2000 Medical Dr 2010 7395 West Eastman Place 2012 8230 Nature’s Way 2005 8220 Natures Way 1999 43051 15th St. West 1979 262 Toll Gate Road 1984 One Magnolia Drive 2002 2500 North Tenaya Way 1996 3220 Peterson Road 1986 2341 W. Norvell Bryant Hwy. 1998 600 & 620 Laurel St. 2013 100 Grove Lane 2010 307 London Road 1998 1145 Powell Rd., N.E. 2003 785 Columbia Boulevard West 1994 8710 Caenen Lake Rd 1997 161 Young Dr. 2001 901 Florsheim Dr 2012 Wissage Road 2013 54 Red Mulberry Way 1999 2041 NC-210 N 2000 7208 Van Dorn St. 1997 432 Central Ave 1998 19 Constitution Way 2000 55-15 Little Neck Pkwy. 1974 35 Fenton Street 2016 6 Victoria Drive 2007 311 E Hawkins Pkwy 2011 425 South Ronald Reagan Boulevard 1996 202 Rogers St 1978 4604 Lowe Rd 1975 841 Merrimack Street 1969 30 Princeton Blvd 2008 Loxley Road 1988 515 Brightfield Road 2013 189 Monica Blvd 1994 1718 Spring Creek Road 2015 15 Edison Road 2001 445 Route 9 South 1996 8341 Barrett Dr. 2006 100 Dublin Road 2007 2281 Country Club Dr 1986 430 N. Union Rd. 1999 2760 Maytown Road 2012 614 W. 14th Street Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Marion, IN . . . . . . . . . . . . . . Marlborough, UKK . . . . . . . Marlow, UKJ . . . . . . . . . . . . Martinsville, VA . . . . . . . . . Marysville, WA . . . . . . . . . . Matawan, NJ . . . . . . . . . . . . Matthews, NC . . . . . . . . . . . McHenry, IL . . . . . . . . . . . . McKinney, TX . . . . . . . . . . . McMinnville, OR . . . . . . . . . McMurray, PA . . . . . . . . . . . Mechanicsburg, PA . . . . . . . Medicine Hat, AB . . . . . . . . Melbourne, FL . . . . . . . . . . . Melville, NY . . . . . . . . . . . . Mendham, NJ . . . . . . . . . . . . Menomonee Falls, WI . . . . . — — — — 4,355 — — — — — — — 2,412 — — — — 990 2,677 — 349 620 1,830 560 1,576 1,570 720 1,440 1,350 932 7,070 4,280 1,240 1,020 9,190 6,822 — — 4,780 20,618 4,738 — 7,389 7,984 15,805 16,650 5,566 48,257 73,283 27,169 6,984 Mercerville, NJ . . . . . . . . . . — 860 9,929 Meriden, CT . . . . . . . . . . . . . Meridian, ID . . . . . . . . . . . . Merrillville, IN . . . . . . . . . . . Mesa, AZ . . . . . . . . . . . . . . . Middleburg Heights, OH . . . Middleton, WI . . . . . . . . . . . Midland, MI . . . . . . . . . . . . . Mill Creek, WA . . . . . . . . . . Millville, NJ . . . . . . . . . . . . . Milton Keynes, UKJ . . . . . . Milwaukie, OR . . . . . . . . . . Mishawaka, IN . . . . . . . . . . . Missoula, MT . . . . . . . . . . . . Monmouth Junction, NJ . . . . Monroe, NC . . . . . . . . . . . . . Monroe, NC . . . . . . . . . . . . . Monroe, NC . . . . . . . . . . . . . Monroe Township, NJ . . . . . Monroe Twp, NJ . . . . . . . . . Montville, NJ . . . . . . . . . . . . Moorestown, NJ . . . . . . . . . . Moorestown, NJ . . . . . . . . . . Morehead City, NC . . . . . . . Morton Grove, IL . . . . . . . . . Mount Pleasant, SC . . . . . . . Mount Vernon, WA . . . . . . . Mt. Vernon, WA . . . . . . . . . Murphy, TX . . . . . . . . . . . . . Nacogdoches, TX . . . . . . . . Naperville, IL . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . . Naugatuck, CT . . . . . . . . . . . Needham, MA . . . . . . . . . . . Neodesha, KS . . . . . . . . . . . New Braunfels, TX . . . . . . . New Haven, IN . . . . . . . . . . New Moston, UKD . . . . . . . Newark, DE . . . . . . . . . . . . . — — — 5,805 — — — 18,239 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,300 3,600 700 950 960 420 200 10,150 840 1,826 1,472 20,802 11,699 9,087 7,780 4,006 11,025 60,274 29,944 18,654 400 6,782 740 550 720 470 310 450 3,250 1,160 3,500 2,060 6,400 200 1,900 — 3,440 400 1,950 390 3,470 4,910 1,200 1,610 20 1,200 176 1,480 560 16,114 7,490 6,209 3,681 4,799 4,021 27,771 13,193 31,002 51,628 23,875 3,104 19,374 17,200 21,842 2,200 19,182 5,754 29,547 29,590 15,826 13,715 430 19,800 3,524 4,378 21,220 990 2,677 8,772 349 620 1,830 560 1,576 1,570 720 1,440 1,350 961 7,070 4,299 1,240 1,020 10,014 6,822 38,421 — 5,683 20,701 4,738 — 7,389 8,134 19,699 16,650 5,737 64,581 77,570 27,807 8,636 860 10,096 1,300 3,600 700 950 960 420 200 10,179 840 1,826 1,570 21,053 11,853 9,888 7,780 4,606 16,547 61,179 30,071 18,654 400 6,897 740 550 720 470 310 450 3,250 1,160 3,500 2,071 6,400 200 1,900 4,052 3,440 400 1,950 390 3,470 4,910 1,200 1,610 20 2,729 176 1,480 560 16,114 7,867 6,288 4,329 5,656 4,135 27,862 13,295 31,849 53,186 23,875 4,752 19,533 13,149 24,069 2,356 19,760 5,754 29,547 29,590 16,023 14,081 449 28,425 3,524 4,378 22,708 824 — 47,193 — 903 83 — — — 150 3,894 — 200 16,324 4,305 638 1,652 167 98 251 154 801 — 600 5,522 935 127 — 115 — 377 79 648 857 114 91 102 847 1,569 — 1,648 159 — 2,227 156 578 — — — 197 366 19 10,154 — — 1,488 131 732 384 1,329 — 1,905 2,950 1,810 — 1,452 350 2,544 2,432 353 11,663 11,736 4,260 1,830 1,709 518 7,802 2,781 4,367 2,571 1,689 2,118 15,746 4,710 864 294 1,054 2,367 1,125 1,650 2,046 1,573 723 2,268 4,485 8,185 1,824 2,038 2,673 1,945 1,259 627 660 1,480 4,718 6,736 2,576 6,108 19 3,382 1,559 412 6,946 2014 2014 2013 2003 2003 2011 2003 2006 2009 2015 2010 2011 2014 2007 2010 2011 2006 2011 2011 2006 2007 1999 2004 2001 2010 2010 2011 2015 2015 2014 2005 2011 2003 2003 2003 2015 2011 2011 2010 2012 1999 2010 2013 2014 2006 2015 2006 2011 2008 2011 2002 2015 2011 2004 2013 2004 1976 505 N. Bradner Avenue 1999 The Common 2014 210 Little Marlow Road 1900 Rolling Hills Rd. & US Hwy. 58 1998 9802 48th Dr. N.E. 1965 625 State Highway 34 1998 2404 Plantation Center Dr. 1900 5200 Block of Bull Valley Road 2010 2701 Alma Rd. 1996 3121 NE Cumulus Avenue 2011 240 Cedar Hill Dr 1971 4950 Wilson Lane 1999 65 Valleyview Drive SW 2009 7300 Watersong Lane 2001 70 Pinelawn Rd 1968 84 Cold Hill Road 2007 W128 N6900 Northfield Drive 1967 2240 White Horse- Merceville Road 1968 845 Paddock Ave 2008 2825 E. Blue Horizon Dr. 2008 9509 Georgia St. 2000 7231 E. Broadway 1998 15435 Bagley Rd. 1991 6701 Stonefield Rd. 1994 2325 Rockwell Dr 1998 14905 Bothell-Everett Hwy 1986 54 Sharp Street 2007 Tunbridge Grove, Kents Hill 1991 5770 SE Kellogg Creek Drive 2013 60257 Bodnar Blvd 1998 3620 American Way 1996 2 Deer Park Drive 2001 918 Fitzgerald St. 2000 919 Fitzgerald St. 1997 1316 Patterson Ave. 1996 319 Forsgate Drive 1996 292 Applegarth Road 1988 165 Changebridge Rd. 2000 1205 N. Church St 2014 250 Marter Avenue 1999 107 Bryan St. 2011 5520 N. Lincoln Ave. 1985 1200 Hospital Drive 1987 1810 E. Division Street 2001 3807 East College Way 2012 304 West FM 544 2007 5902 North St 2001 504 North River Road 2007 15 Burton Hills Boulevard 1980 4 Hazel Avenue 1994 100 West St. 1994 400 Fir St 2009 2294 East Common Street 1981 1201 Daly Dr. 2010 90a Broadway 1998 200 E. Village Rd. Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Newcastle Under Lyme, UKG . . . . . . . . . . . . . . . . . Newcastle-under-Lyme, UKG . . . . . . . . . . . . . . . . . Norman, OK . . . . . . . . . . . . Norman, OK . . . . . . . . . . . . North Augusta, SC . . . . . . . . North Bend, OR . . . . . . . . . . North Cape May, NJ . . . . . . North Cape May, NJ . . . . . . Northampton, UKF . . . . . . . Northampton, UKF . . . . . . . Nuneaton, UKG . . . . . . . . . . Nuthall, UKF . . . . . . . . . . . . Nuthall, UKF . . . . . . . . . . . . Oakland, CA . . . . . . . . . . . . Ocala, FL . . . . . . . . . . . . . . . Ogden, UT . . . . . . . . . . . . . . Oklahoma City, OK . . . . . . . Oklahoma City, OK . . . . . . . Olathe, KS . . . . . . . . . . . . . . Omaha, NE . . . . . . . . . . . . . Omaha, NE . . . . . . . . . . . . . Ona, WV . . . . . . . . . . . . . . . Oneonta, NY . . . . . . . . . . . . Orem, UT . . . . . . . . . . . . . . . Osage City, KS . . . . . . . . . . Osawatomie, KS . . . . . . . . . Ottawa, KS . . . . . . . . . . . . . . Overland Park, KS . . . . . . . . Overland Park, KS . . . . . . . . Overland Park, KS . . . . . . . . Overland Park, KS . . . . . . . . Owasso, OK . . . . . . . . . . . . . Owensboro, KY . . . . . . . . . . Owenton, KY . . . . . . . . . . . . Oxford, MI . . . . . . . . . . . . . . Palestine, TX . . . . . . . . . . . . Palm Coast, FL . . . . . . . . . . Paola, KS . . . . . . . . . . . . . . . Paris, TX . . . . . . . . . . . . . . . Paso Robles, CA . . . . . . . . . Pella, IA . . . . . . . . . . . . . . . . Pennington, NJ . . . . . . . . . . . Pennsauken, NJ . . . . . . . . . . Petoskey, MI . . . . . . . . . . . . Pewaukee, WI . . . . . . . . . . . Philadelphia, PA . . . . . . . . . Phillipsburg, NJ . . . . . . . . . . Phillipsburg, NJ . . . . . . . . . . Pinehurst, NC . . . . . . . . . . . . Piqua, OH . . . . . . . . . . . . . . Pittsburgh, PA . . . . . . . . . . . Plainview, NY . . . . . . . . . . . Plano, TX . . . . . . . . . . . . . . . Plattsmouth, NE . . . . . . . . . . Plymouth, MI . . . . . . . . . . . . Port St. Lucie, FL . . . . . . . . Post Falls, ID . . . . . . . . . . . . Princeton, NJ . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,110 1,125 55 1,480 332 1,290 600 77 5,182 2,013 3,325 1,628 2,498 4,760 1,340 360 590 760 1,930 370 380 950 80 2,150 50 130 160 3,730 4,500 410 1,300 215 225 100 1,430 180 870 190 490 1,770 870 1,380 900 860 4,700 2,930 800 300 290 204 1,750 3,990 1,840 250 1,490 8,700 2,700 1,730 5,655 5,537 1,484 33,330 2,558 7,361 22,266 151 17,348 6,257 8,983 6,263 10,436 16,143 10,564 6,700 7,513 7,017 19,765 10,230 8,769 15,998 5,020 24,107 1,700 2,970 6,590 27,076 29,105 2,840 25,311 1,380 13,275 2,400 15,791 4,320 10,957 5,610 5,452 8,630 6,716 27,620 10,780 14,452 20,669 10,433 21,175 8,114 2,690 1,885 8,572 11,969 20,152 5,650 19,990 47,230 14,217 30,888 5,655 5,537 1,484 33,330 2,558 8,047 22,314 610 17,348 6,257 8,983 6,263 10,436 16,200 10,564 7,399 7,513 7,017 20,318 10,230 8,769 15,998 5,020 24,107 1,802 3,037 6,618 27,416 36,400 2,867 25,988 1,380 13,275 2,400 15,791 5,620 10,957 5,620 5,452 9,323 6,805 28,343 10,959 14,452 20,669 13,960 21,401 8,191 3,174 1,885 8,687 12,787 20,712 5,650 20,225 53,320 16,398 32,324 1,110 1,125 55 1,480 332 1,290 600 77 5,182 2,013 3,325 1,628 2,498 4,760 1,340 360 590 760 1,930 370 380 950 80 2,150 50 130 160 3,730 4,500 410 1,300 215 225 100 1,430 180 870 190 490 1,770 870 1,471 900 860 4,700 2,930 800 300 290 204 1,750 3,990 1,840 250 1,490 8,700 2,700 1,810 — — — — — 686 48 460 — — — — — 57 — 699 — — 553 — — — — — 102 67 28 340 7,295 27 677 — — — — 1,300 — 10 — 693 89 814 179 — — 3,527 226 77 484 — 115 818 560 — 235 6,090 2,181 1,516 132 509 2013 2010 Hempstalls Lane 311 875 3,858 1,228 331 3,488 31 1,623 339 809 326 950 1,065 2,169 2,330 1,761 1,584 517 1,823 1,647 560 1,188 778 56 90 185 5,416 6,277 90 699 737 4,465 992 2,719 1,512 2,112 158 3,694 3,591 776 3,947 1,992 2,348 6,858 2,324 3,443 1,312 1,248 934 2,881 1,958 357 1,059 3,293 9,314 3,695 4,587 2014 1995 2012 1999 2015 2011 2015 2013 2014 2013 2014 2013 2014 2008 2004 2007 2007 2016 2010 2010 2015 2007 2015 2015 2015 2015 2008 2010 2015 2016 1996 2005 2005 2010 2006 2008 2015 2005 2002 2012 2011 2011 2011 2007 2011 2011 2011 2003 1997 2005 2011 2016 2010 2010 2008 2007 2011 1999 Silverdale Road 1995 1701 Alameda Dr. 1985 800 Canadian Trails Drive 1998 105 North Hills Dr. 1995 2290 Inland Drive 1995 700 Townbank Road 1988 610 Town Bank Road 2011 Cliftonville Road 2014 Cliftonville Road 2011 132 Coventry Road 2014 172A Nottingham Road 2011 172 Nottingham Road 2002 468 Perkins Street 2009 2650 SE 18TH Avenue 1998 1340 N. Washington Blv. 2008 13200 S. May Ave 2009 11320 N. Council Road 2015 21250 W 151 Street 1998 11909 Miracle Hills Dr. 1999 5728 South 108th St. 2007 100 Weatherholt Drive 1996 1846 County Highway 48 2014 250 East Center Street 1996 1403 Laing St 2003 1520 Parker Ave 2007 2250 S Elm St 2009 12000 Lamar Avenue 1988 6101 W 119th St 2004 14430 Metcalf Ave 2015 7600 Antioch Road 1996 12807 E. 86th Place N. 1964 1205 Leitchfield Rd. 1979 905 Hwy. 127 N. 2001 701 Market St 2005 1625 W. Spring St. 2010 50 Town Ct. 2000 601 N. East Street 2006 750 N Collegiate Dr 1998 1919 Creston Rd. 2002 2602 Fifield Road 2000 143 West Franklin Avenue 1985 5101 North Park Drive 1997 965 Hager Dr 2007 2400 Golf Rd. 1952 1526 Lombard Street 1992 290 Red School Lane 1905 843 Wilbur Avenue 1998 17 Regional Dr. 1997 1744 W. High St. 1998 100 Knoedler Rd. 1963 150 Sunnyside Blvd 2016 3325 W Plano Parkway 1999 1913 E. Highway 34 1972 14707 Northville Rd 2010 10685 SW Stony Creek Way 2008 460 N. Garden Plaza Ct. 2001 155 Raymond Road Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Prior Lake, MN . . . . . . . . . . Puyallup, WA . . . . . . . . . . . Raleigh, NC . . . . . . . . . . . . . Raleigh, NC . . . . . . . . . . . . . Reading, PA . . . . . . . . . . . . . Red Bank, NJ . . . . . . . . . . . . Rehoboth Beach, DE . . . . . . Reidsville, NC . . . . . . . . . . . Reno, NV . . . . . . . . . . . . . . . Richardson, TX . . . . . . . . . . Richmond, IN . . . . . . . . . . . Richmond, VA . . . . . . . . . . . Ridgeland, MS . . . . . . . . . . . Rochdale, MA . . . . . . . . . . . Rockville, MD . . . . . . . . . . . Rockville, CT . . . . . . . . . . . . Rockville Centre, NY . . . . . Rockwall, TX . . . . . . . . . . . . Rocky Hill, CT . . . . . . . . . . . Rohnert Park, CA . . . . . . . . . Romeoville, IL . . . . . . . . . . . Roseburg, OR . . . . . . . . . . . Roseville, MN . . . . . . . . . . . Roswell, GA . . . . . . . . . . . . Rugeley, UKG . . . . . . . . . . . Ruston, LA . . . . . . . . . . . . . . Sacramento, CA . . . . . . . . . . Salem, OR . . . . . . . . . . . . . . Salem, OR . . . . . . . . . . . . . . Salisbury, NC . . . . . . . . . . . . San Angelo, TX . . . . . . . . . . San Angelo, TX . . . . . . . . . . San Antonio, TX . . . . . . . . . San Antonio, TX . . . . . . . . . San Bernardino, CA . . . . . . . San Diego, CA . . . . . . . . . . . Sanatoga, PA . . . . . . . . . . . . Sand Springs, OK . . . . . . . . Sarasota, FL . . . . . . . . . . . . . Sarasota, FL . . . . . . . . . . . . . Scranton, PA . . . . . . . . . . . . Scranton, PA . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . . Selbyville, DE . . . . . . . . . . . Seven Fields, PA . . . . . . . . . Severna Park, MD(2) . . . . . . . Shawnee, OK . . . . . . . . . . . . Shelbyville, KY . . . . . . . . . . Shelton, WA . . . . . . . . . . . . Sherman, TX . . . . . . . . . . . . Shrewsbury, NJ . . . . . . . . . . Silvis, IL . . . . . . . . . . . . . . . Sittingbourne, UKJ . . . . . . . Smithfield, NC . . . . . . . . . . . Smithfield, NC . . . . . . . . . . . Sonoma, CA . . . . . . . . . . . . . South Bend, IN . . . . . . . . . . 14,250 10,968 — — — — — — — — — — — — — — — — — 13,024 — — — 7,489 — — 9,762 — — — — — — — — — — 6,431 — — — — 7,344 27,180 — — — — — — — — — — — — 14,278 — 1,870 1,150 3,530 2,580 980 1,050 960 170 1,060 1,800 700 — 520 — — 1,500 4,290 — 1,090 6,500 1,895 1,200 2,140 1,107 1,900 710 940 449 440 370 260 1,050 6,120 — 3,700 — 980 910 475 3,360 440 320 5,190 10,670 750 484 2,120 80 630 530 700 2,120 880 1,357 290 360 1,100 670 29,849 20,776 59,589 16,837 19,906 21,275 24,248 3,830 11,440 16,562 14,222 12,000 7,675 7,100 16,398 4,835 20,310 — 6,710 18,700 — 4,891 24,679 9,627 10,262 9,790 14,781 5,171 4,726 5,697 8,800 24,689 28,169 17,303 14,300 22,003 30,695 19,654 3,175 19,140 17,609 12,144 9,350 37,291 25,912 4,663 31,273 1,400 3,870 17,049 5,221 38,116 16,420 6,539 5,680 8,216 18,400 17,770 29,862 21,216 59,589 16,837 20,026 21,771 32,864 4,687 12,045 16,893 14,615 11,750 8,102 6,410 16,408 4,967 21,091 17,581 8,210 20,769 — 4,935 24,746 10,706 10,262 9,790 15,020 5,172 4,796 5,865 9,225 25,241 30,450 17,303 14,987 23,848 30,770 19,654 3,175 19,140 17,609 12,144 9,905 38,155 26,253 4,722 32,081 1,400 4,500 17,521 5,221 39,018 16,559 6,539 5,680 8,216 20,090 17,770 1,870 1,156 3,530 2,580 980 1,050 976 170 1,060 1,800 700 250 520 690 — 1,500 4,290 2,220 1,090 6,546 1,895 1,200 2,140 1,114 1,900 710 952 449 440 370 260 1,050 6,120 — 3,700 — 980 910 475 3,360 440 320 5,199 10,700 769 484 2,120 80 630 530 700 2,128 880 1,357 290 360 1,109 670 13 445 — — 120 496 8,632 857 605 331 393 — 427 — 10 132 781 19,801 1,500 2,116 — 44 67 1,086 — — 251 — 71 168 425 552 2,281 — 687 1,845 75 — — — — — 564 894 360 60 808 — 630 472 — 910 139 — — — 1,700 — 133 896 4,713 6,682 2,029 3,180 3,016 4,296 1,825 3,857 769 370 1,229 2,771 642 2,195 1,056 3,064 674 2,690 6,372 — 215 746 7,739 978 1,551 3,341 2,463 209 2,145 2,896 1,650 4,358 6,432 3,115 4,875 4,725 2,317 1,769 2,677 1,056 722 3,119 10,575 4,141 2,254 4,897 771 1,357 2,157 1,414 6,095 2,802 353 2,094 487 6,132 1,080 2015 2010 2012 2012 2011 2011 2010 2002 2004 2015 2016 2013 2003 2013 2012 2011 2011 2012 2003 2005 2006 2015 2015 1997 2013 2011 2010 1999 2015 2003 2004 2014 2010 2007 2008 2008 2011 2012 1996 2011 2014 2014 2010 2010 2010 1999 2011 1996 2005 2012 2005 2010 2010 2014 2003 2014 2005 2014 2003 4685 Park Nicollet Avenue 1985 123 Fourth Ave. NW 2002 5301 Creedmoor Road 1988 7900 Creedmoor Road 1994 5501 Perkiomen Ave 1997 One Hartford Dr. 1999 36101 Seaside Blvd 1998 2931 Vance St. 1998 5165 Summit Ridge Road 2009 1350 East Lookout Drive 2015 400 Industries Road 1989 2220 Edward Holland Drive 1997 410 Orchard Park 1994 111 Huntoon Memorial Highway 1986 9701 Medical Center Drive 1960 1253 Hartford Turnpike 2002 260 Maple Ave 2014 720 E Ralph Hall Parkway 1996 60 Cold Spring Rd. 1986 4855 Snyder Lane 1900 Grand Haven Circle 1990 1901 NW Hughwood Drive 1989 2750 North Victoria Street 1999 655 Mansell Rd. 2010 Horse Fair 1988 1401 Ezelle St 1978 6350 Riverside Blvd 1998 1355 Boone Rd. S.E. 1992 3988 12th Street SE 1997 2201 Statesville Blvd. 1997 2695 Valleyview Blvd. 1999 6101 Grand Court Road 2011 2702 Cembalo Blvd 2007 8902 Floyd Curl Dr. 1993 1760 W. 16th St. 1992 555 Washington St. 1993 225 Evergreen Road 2002 4402 South 129th Avenue West 1995 8450 McIntosh Rd. 2006 6150 Edgelake Drive 2005 2741 Blvd. Ave 2013 2751 Boulevard Ave 1962 11501 15th Ave NE 2005 805 4th Ave N 2008 21111 Arrington Dr 1999 500 Seven Fields Blvd. 1981 24 Truckhouse Road 1995 3947 Kickapoo 1965 1871 Midland Trail 1989 900 W Alpine Way 2006 1011 E. Pecan Grove Rd. 2000 5 Meridian Way 2005 1900 10th St. 1997 200 London Road 1998 830 Berkshire Rd. 1999 250 Highway 210 West 1988 800 Oregon St. 2014 52565 State Road 933 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address South Boston, MA . . . . . . . . Southbury, CT . . . . . . . . . . . Sparks, NV . . . . . . . . . . . . . . Springfield, OR . . . . . . . . . . Springfield, IL . . . . . . . . . . . Springfield, IL . . . . . . . . . . . St. Paul, MN . . . . . . . . . . . . Stafford, UKG . . . . . . . . . . . Stamford, UKF . . . . . . . . . . Statesville, NC . . . . . . . . . . . Statesville, NC . . . . . . . . . . . Statesville, NC . . . . . . . . . . . Stillwater, OK . . . . . . . . . . . Stockton, CA . . . . . . . . . . . . Stratford-upon-Avon, UKG . . . . . . . . . . . . . . . . . Stroudsburg, PA . . . . . . . . . . Summit, NJ . . . . . . . . . . . . . . . . . . . . . . . . . Superior, WI Swanton, OH . . . . . . . . . . . . Terre Haute, IN . . . . . . . . . . Texarkana, TX . . . . . . . . . . . The Villages, FL . . . . . . . . . Tomball, TX . . . . . . . . . . . . Toms River, NJ . . . . . . . . . . Tonganoxie, KS . . . . . . . . . . Topeka, KS . . . . . . . . . . . . . Towson, MD(2) . . . . . . . . . . . Troy, OH . . . . . . . . . . . . . . . Troy, OH . . . . . . . . . . . . . . . Trumbull, CT . . . . . . . . . . . . Tucson, AZ . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . . Tyler, TX . . . . . . . . . . . . . . . Upper Providence, PA . . . . . Vacaville, CA . . . . . . . . . . . Vallejo, CA . . . . . . . . . . . . . Vallejo, CA . . . . . . . . . . . . . Valparaiso, IN . . . . . . . . . . . Valparaiso, IN . . . . . . . . . . . Vancouver, WA . . . . . . . . . . Venice, FL . . . . . . . . . . . . . . Vero Beach, FL . . . . . . . . . . Vero Beach, FL . . . . . . . . . . Vero Beach, FL . . . . . . . . . . Virginia Beach, VA . . . . . . . Voorhees, NJ . . . . . . . . . . . . Voorhees, NJ(2) . . . . . . . . . . . Voorhees, NJ . . . . . . . . . . . . Voorhees, NJ . . . . . . . . . . . . Wabash, IN . . . . . . . . . . . . . Waconia, MN . . . . . . . . . . . . Wake Forest, NC . . . . . . . . . Wall, NJ . . . . . . . . . . . . . . . . Wallingford, CT . . . . . . . . . . — — — — — — — — — — — — — 2,810 — — — — — — — — — — — — — — — — — — — — — — 13,392 13,407 7,147 — — 11,214 — — — — — — — — — — — — — — 385 1,860 3,700 1,790 — 990 2,100 — 1,820 150 310 140 80 2,280 790 340 3,080 1,020 330 1,370 192 1,035 1,050 1,610 310 260 1,180 200 470 4,440 1,190 3,003 1,390 1,320 2,002 23,613 46,526 8,865 10,100 13,378 33,019 — 3,238 1,447 6,183 3,627 1,400 5,983 14,508 16,313 14,152 13,735 6,370 18,016 1,403 7,446 13,300 34,627 3,690 12,712 13,280 2,000 16,730 43,384 18,318 6,025 7,110 10,087 650 5,268 — 900 4,000 2,330 112 108 1,820 1,150 263 297 2,930 1,540 1,800 1,900 3,100 3,700 670 890 200 1,650 490 — 17,100 18,000 15,407 2,558 2,962 19,042 10,674 3,187 3,263 40,070 22,593 37,299 26,040 25,950 24,312 14,588 14,726 3,003 25,350 1,210 5,218 958 — 90 — 1,084 78 9,909 — 266 8 — — 397 — — — 6,159 — — — — 779 813 69 — 195 4,254 — — 668 20 517 — — 30,095 1,651 2,344 310 — — 270 — — — 15,112 — 657 894 21 1,560 — 4,495 1,742 2,421 65 385 1,860 3,700 1,790 768 990 2,100 1,943 1,820 150 310 140 80 2,372 790 340 3,080 1,020 330 1,370 192 1,035 1,050 1,679 310 260 1,180 200 470 4,440 1,190 3,003 1,390 1,320 7,220 24,571 46,526 8,954 9,332 14,462 33,097 7,966 3,238 1,713 6,191 3,627 1,400 6,288 14,508 16,313 14,152 19,894 6,370 18,016 1,403 7,446 14,079 35,371 3,759 12,712 13,475 6,254 16,730 43,384 18,985 6,045 7,627 10,087 650 5,268 1,900 900 4,030 2,330 112 108 1,821 1,150 263 297 2,930 1,540 1,800 1,900 3,100 3,847 670 890 200 1,692 490 28,195 18,751 20,315 15,717 2,558 2,962 19,311 10,674 3,187 3,263 55,182 22,593 37,956 26,934 25,971 25,725 14,588 19,221 4,745 27,729 1,275 134 3,486 3,660 9,398 385 1,258 866 988 54 187 672 2,216 1,330 774 1,638 652 987 2,238 1,813 2,245 881 749 654 2,076 5,584 114 1,548 2,204 1,841 5,678 6,548 521 3,248 1,467 1,233 1,366 1,226 5,857 6,287 3,716 1,087 1,238 4,339 2,113 1,322 1,363 12,173 1,361 5,987 4,266 2,965 2,443 940 2,567 2,086 3,774 343 1995 2011 2007 2015 2013 2014 2015 2014 2014 2003 2003 2003 1995 2010 2015 2014 2011 2009 2004 2015 1996 2013 2011 2010 2015 2012 2011 1997 2004 2011 2015 2006 2010 2011 2006 2013 2005 2005 2010 2001 2001 2010 2008 2001 2001 2007 2014 2011 2011 2011 2012 2014 2011 1998 2011 2011 1961 804 E. Seventh St. 2001 655 Main St 2009 275 Neighborhood Way 1994 770 Harlow Road 2010 701 North Walnut Street 2013 3089 Old Jacksonville Road 1996 750 Mississippi River 2016 Stone Road 1998 Priory Road 1990 2441 E. Broad St. 1996 2806 Peachtree Place 1999 2814 Peachtree Rd. 1995 1616 McElroy Rd. 1988 6725 Inglewood 2012 Scholars Lane 2011 370 Whitestone Corner Road 2001 41 Springfield Avenue 2010 1915 North 34th Street 1950 401 W. Airport Hwy. 2015 395 8th Avenue 1996 4204 Moores Lane 2014 2450 Parr Drive 2001 1221 Graham Dr 2005 1587 Old Freehold Rd 2009 120 W 8th St 2011 1931 Southwest Arvonia Place 1973 7700 York Road 1997 81 S. Stanfield Rd. 1971 512 Crescent Drive 2001 6949 Main Street 1997 8151 E Speedway Boulevard 1992 3219 S. 79th E. Ave. 1998 7220 S. Yale Ave. 2012 7902 South Mingo Road East 2007 5550 Old Jacksonville Hwy. 2015 1133 Black Rock Road 1987 799 Yellowstone Dr. 1989 350 Locust Dr. 1990 2261 Tuolumne 1998 2601 Valparaiso St. 1999 2501 Valparaiso St. 2006 10011 NE 118th Ave 2009 1600 Center Rd. 1999 420 4th Ct. 1996 410 4th Ct. 2003 7955 16th Manor 1993 5520 Indian River Rd 1965 2601 Evesham Road 1985 3001 Evesham Road 2013 113 South Route 73 2013 311 Route 73 2013 20 John Kissinger Drive 2005 500 Cherry Street 1999 611 S. Brooks St. 2003 2021 Highway 35 1962 35 Marc Drive Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Walsall, UKG . . . . . . . . . . . Wamego, KS . . . . . . . . . . . . Wareham, MA . . . . . . . . . . . Warren, NJ . . . . . . . . . . . . . . Watchung, NJ . . . . . . . . . . . Waukee, IA . . . . . . . . . . . . . Waxahachie, TX . . . . . . . . . Weatherford, TX . . . . . . . . . Wellingborough, UKF . . . . . West Bend, WI . . . . . . . . . . . West Chester, PA . . . . . . . . . West Orange, NJ . . . . . . . . . Westerville, OH . . . . . . . . . . Westfield, IN . . . . . . . . . . . . . . . . . . . . . . Westfield, NJ(2) Westlake, OH . . . . . . . . . . . . Weston Super Mare, UKK . . . . . . . . . . . . . . . . . Westworth Village, TX . . . . White Lake, MI . . . . . . . . . . Wichita, KS . . . . . . . . . . . . . Wichita, KS . . . . . . . . . . . . . Wichita, KS . . . . . . . . . . . . . Wichita, KS . . . . . . . . . . . . . Wichita, KS . . . . . . . . . . . . . Wilkes-Barre, PA . . . . . . . . . Williamstown, KY . . . . . . . . Wilmington, DE . . . . . . . . . . Wilmington, NC . . . . . . . . . Wilmington, NC . . . . . . . . . Windsor, CT . . . . . . . . . . . . Windsor, CT . . . . . . . . . . . . Winston-Salem, NC . . . . . . . Winter Garden, FL . . . . . . . . Witherwack, UKC . . . . . . . . Wolverhampton, UKG . . . . . Worcester, MA . . . . . . . . . . Worcester, MA . . . . . . . . . . Wyncote, PA . . . . . . . . . . . . York, UKE . . . . . . . . . . . . . . Youngsville, NC . . . . . . . . . Zionsville, IN . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — 13,208 — — — — — — — — — — — — — — — — — — — 1,184 40 875 2,000 1,920 1,870 650 660 1,480 620 1,350 2,280 740 890 2,270 1,330 2,517 2,060 2,920 1,400 860 629 260 — 570 70 800 210 400 2,250 1,800 360 1,350 944 1,573 3,500 2,300 2,700 2,961 380 1,610 8,562 2,510 10,313 30,810 24,880 31,878 5,763 5,261 5,724 17,790 29,237 10,687 8,287 15,964 16,589 17,926 7,054 31,296 20,179 11,000 8,873 19,749 2,240 — 2,301 6,430 9,494 2,991 15,356 8,539 600 2,514 7,937 6,915 6,678 54,099 9,060 22,244 8,266 10,689 22,400 — 14 1,701 727 1,030 1,075 — — — 38 251 182 3,105 — 497 — — — 92 — — — 81 11,034 44 — 59 — — 1,848 944 459 — — — — 5,037 233 — — 1,691 1,184 40 875 2,000 1,976 1,870 650 660 1,480 620 1,350 2,280 740 890 2,270 1,330 2,517 2,060 2,920 1,400 860 629 260 900 570 70 800 210 400 2,250 1,800 360 1,350 944 1,573 3,500 2,300 2,700 2,961 380 1,610 8,562 2,524 12,014 31,537 25,853 32,953 5,763 5,261 5,724 17,828 29,488 10,869 11,392 15,964 17,086 17,926 7,054 31,296 20,271 11,000 8,873 19,752 2,321 10,134 2,345 6,430 9,553 2,991 15,356 10,387 1,544 2,973 7,937 6,915 6,678 54,099 14,097 22,477 8,266 10,689 24,091 408 74 4,983 4,322 3,620 3,686 1,362 1,375 322 2,364 4,641 1,915 8,620 1,019 2,961 7,346 639 1,705 3,386 3,955 1,261 2,302 67 1,360 603 2,183 1,621 1,419 955 1,783 394 1,130 908 627 610 10,138 2,185 3,639 467 647 3,894 2015 2015 2002 2011 2011 2012 2007 2006 2015 2010 2011 2011 1998 2014 2011 2001 2013 2014 2010 2006 2011 2012 2015 2011 2011 2005 2011 1999 2014 2011 2011 2003 2012 2013 2013 2007 2008 2011 2014 2014 2010 2015 Little Aston Road 1996 1607 4th St 1989 50 Indian Neck Rd. 1999 274 King George Rd 2000 680 Mountain Boulevard 2007 1650 SE Holiday Crest Circle 2008 1329 Brown St. 2007 1818 Martin Drive 2015 159 Northampton 2011 2130 Continental Dr 1974 800 West Miner Street 1963 20 Summit Street 2001 690 Cooper Rd. 2013 937 E. 186th Street 1970 1515 Lamberts Mill Road 1985 27601 Westchester Pkwy. 2011 141b Milton Road 2014 25 Leonard Trail 2000 935 Union Lake Rd 1997 505 North Maize Road 2012 10604 E 13th Street North 2009 2050 North Webb Road 1992 900 N Bayshore Dr 2012 10604 E 13th Street North 1992 300 Courtright Street 1987 201 Kimberly Lane 1970 810 S Broom Street 1999 3501 Converse Dr. 2012 3828 Independence Blvd 1969 One Emerson Drive 1974 One Emerson Drive 1996 2980 Reynolda Rd. 2013 720 Roper Road 2009 Whitchurch Road 2011 378 Prestonwood Road 2009 101 Barry Road 1993 378 Plantation St. 1960 1245 Church Road 2006 Rosetta Way, Boroughbridge Road 2013 100 Sunset Drive 2009 11755 N Michigan Rd Triple-net total . . . . . . . . . . $ 594,199 $ 804,007 $7,794,067 $ 718,637 $ 853,984 $8,462,729 $1,317,149 135 Welltower Inc. Schedule III Real Estate and Accumulated Depreciation December 31, 2016 (Dollars in thousands) Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Seniors housing operating: Acton, MA . . . . . . . . . . . . . $ — $ — $ Agawam, MA . . . . . . . . . . . 6,334 Albuquerque, NM . . . . . . . Alhambra, CA . . . . . . . . . . Altrincham, UKD . . . . . . . . Amherstview, ON . . . . . . . Arlington, TX . . . . . . . . . . . Arnprior, ON . . . . . . . . . . . Atlanta, GA . . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . Austin, TX . . . . . . . . . . . . . — — — 591 21,090 412 — — — Avon, CT . . . . . . . . . . . . . . 18,645 Azusa, CA . . . . . . . . . . . . . Bagshot, UKJ . . . . . . . . . . . Banstead, UKJ . . . . . . . . . . Basingstoke, UKJ . . . . . . . . Basking Ridge, NJ . . . . . . . Bassett, UKJ . . . . . . . . . . . . — — — — — — Baton Rouge, LA . . . . . . . . 9,186 Beaconsfield, UKJ . . . . . . . Beaconsfield, QC . . . . . . . . Bedford, NH . . . . . . . . . . . . Bee Cave, TX . . . . . . . . . . . Bellevue, WA . . . . . . . . . . . Belmont, CA . . . . . . . . . . . Belmont, CA . . . . . . . . . . . — — — — — — — Berkeley, CA . . . . . . . . . . . 12,663 Bethesda, MD . . . . . . . . . . . Bethesda, MD . . . . . . . . . . . Bethesda, MD . . . . . . . . . . . Billerica, MA . . . . . . . . . . . Birmingham, UKG . . . . . . . Birmingham, UKG . . . . . . . Birmingham, UKG . . . . . . . Blainville, QC . . . . . . . . . . Bloomfield Hills, MI . . . . . Borehamwood, UKH . . . . . Bothell, WA . . . . . . . . . . . . Boulder, CO . . . . . . . . . . . . Bournemouth, UKK . . . . . . Braintree, MA . . . . . . . . . . Brampton, ON . . . . . . . . . . Brighton, MA . . . . . . . . . . . Brockport, NY . . . . . . . . . . Brockville, ON . . . . . . . . . . — — — — — — — — — — — — — 20,617 43,804 10,127 — 4,604 880 1,270 600 4,244 473 1,660 788 2,100 1,560 4,200 1,550 570 4,960 6,695 3,420 2,356 4,874 790 5,566 1,149 — 1,820 2,800 3,000 — 3,050 — — — 1,619 4 — — 2,077 2,000 5,367 1,350 2,994 5,527 — 10,256 2,100 1,500 484 31,346 10,044 20,837 6,305 25,187 4,446 37,395 6,283 20,603 21,413 74,850 30,571 3,141 29,881 55,113 18,853 37,710 32,304 29,436 50,952 17,484 — 21,084 19,004 23,526 35,300 32,677 45,309 — — 21,381 21,321 — — 8,902 35,662 41,937 13,439 27,458 42,547 41,290 60,021 14,616 23,496 7,445 $ 1,107 $ 14 $ 959 1,275 600 4,244 500 1,709 813 2,154 1,560 4,200 1,580 570 4,960 6,695 3,420 2,389 4,874 801 5,566 1,197 2,548 1,820 2,816 3,000 — 3,050 3 — — 1,624 4 1,480 2,807 2,141 2,000 5,367 1,361 3,014 5,527 56 10,256 2,109 1,500 506 629 1,543 8,987 — 236 2,990 331 749 113 418 2,290 6,941 — — — 1,000 — 367 — 739 33,235 634 1,543 1,889 1,206 2,058 500 127 405 657 — 14,494 14,119 399 604 — 1,928 1,821 — 607 — 1,060 94 338 136 32,440 10,594 22,375 15,292 25,187 4,654 40,336 6,590 21,298 21,526 75,268 32,831 10,082 29,881 55,113 18,853 38,677 32,304 29,792 50,952 18,175 30,687 21,718 20,531 25,415 36,506 34,735 45,807 127 405 22,034 21,321 13,014 11,313 9,237 36,266 41,937 15,357 29,259 42,547 41,841 60,021 15,667 23,590 7,761 $ 4,201 2,441 5,044 1,342 4,127 530 8,632 1,148 2,843 1,840 3,964 8,359 2,656 5,347 8,492 1,395 5,871 5,540 4,477 7,642 3,954 4,123 1,153 3,885 5,447 5,883 716 7,170 22 51 1,852 3,631 28 — 2,400 5,510 6,423 1,270 5,621 5,235 6,713 4,334 3,583 1,808 744 2013 2011 2010 2011 2012 2015 2012 2013 2014 2014 2015 2011 1998 2012 2012 2014 2013 2013 2013 2013 2013 2011 2016 2013 2011 2013 2016 2013 2013 2013 2015 2013 2015 2015 2013 2013 2012 2015 2013 2013 2013 2015 2011 2015 2015 2000 10 Devon Drive 1996 153 Cardinal Drive 1984 500 Paisano St NE 1923 1118 N. Stoneman Ave. 2009 295 Hale Road 1974 4567 Bath Road 2000 1250 West Pioneer Parkway 1991 15 Arthur Street 2000 1000 Lenox Park Blvd NE 2013 11330 Farrah Lane 2014 4310 Bee Caves Road 1998 101 Bickford Extension 1953 125 W. Sierra Madre Ave. 2009 14 - 16 London Road 2005 Croydon Lane 2012 Grove Road 2002 404 King George Road 2006 111 Burgess Road 2009 9351 Siegen Lane 2009 30-34 Station Road 2008 505 Elm Avenue 2012 5 Corporate Drive 2014 14058 A Bee Cave Parkway 1998 15928 NE 8th Street 1971 1301 Ralston Avenue 2002 1010 Alameda de Las Pulgas 1966 2235 Sacramento Street 2009 8300 Burdett Road 2009 8300 Burdett Road 2009 8300 Burdett Road 2000 20 Charnstaffe Lane 2006 5 Church Road, Edgbaston 2016 47 Bristol Road South 2016 134 Jockey Road 2008 50 des Chateaux Boulevard 2009 6790 Telegraph Road 2003 Edgwarebury Lane 1988 10605 NE 185th Street 2003 3955 28th Street 2008 42 Belle Vue Road 2007 618 Granite Street 2009 100 Ken Whillans Drive 1995 50 Sutherland Road 1999 90 West Avenue 1996 1026 Bridlewood Drive Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Brookfield, CT . . . . . . . . . . Broomfield, CO . . . . . . . . . Brossard, QC . . . . . . . . . . . Buckingham, UKJ . . . . . . . Buffalo Grove, IL . . . . . . . . Burbank, CA . . . . . . . . . . . Burbank, CA . . . . . . . . . . . Burlington, ON . . . . . . . . . . Burlington, MA . . . . . . . . . Burlington, MA . . . . . . . . . Calabasas, CA . . . . . . . . . . Calgary, AB . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . Calgary, AB . . . . . . . . . . . . Camberley, UKJ . . . . . . . . . Cardiff, UKL . . . . . . . . . . . Cardiff by the Sea, CA . . . . Carol Stream, IL . . . . . . . . . Cary, NC . . . . . . . . . . . . . . Cedar Park, TX . . . . . . . . . Centerville, MA . . . . . . . . . Cerritos, CA . . . . . . . . . . . . Chatham, ON . . . . . . . . . . . Chelmsford, MA . . . . . . . . Chesterfield, MO . . . . . . . . Chorleywood, UKH . . . . . . Chula Vista, CA . . . . . . . . . Church Crookham, UKJ . . . Cincinnati, OH . . . . . . . . . . Claremont, CA . . . . . . . . . . Cohasset, MA . . . . . . . . . . . Colorado Springs, CO . . . . Concord, NH . . . . . . . . . . . Coquitlam, BC . . . . . . . . . . Costa Mesa, CA . . . . . . . . . Crystal Lake, IL . . . . . . . . . Dallas, TX . . . . . . . . . . . . . Dallas, TX . . . . . . . . . . . . . Danvers, MA . . . . . . . . . . . Danvers, MA . . . . . . . . . . . Davenport, IA . . . . . . . . . . . Decatur, GA . . . . . . . . . . . . Denver, CO . . . . . . . . . . . . Denver, CO . . . . . . . . . . . . Dix Hills, NY . . . . . . . . . . . Dollard-Des - Ormeaux, QC . . . . . . . . . . . . . . . . . Dresher, PA . . . . . . . . . . . . Dublin, OH . . . . . . . . . . . . . East Haven, CT . . . . . . . . . East Meadow, NY . . . . . . . 19,001 — 11,401 — — — 19,935 12,810 — — — 12,534 14,376 11,364 23,014 24,579 — — 38,767 — — — — — 1,422 — — — — — — — — — 13,081 10,245 — — — — 9,175 — — — 12,283 — 2,250 4,140 5,499 2,979 2,850 4,940 3,610 1,309 2,443 2,750 — 2,252 2,793 3,122 3,431 2,385 2,654 3,191 5,880 1,730 740 1,750 1,300 — 1,098 1,589 1,857 5,636 2,072 2,591 2,060 2,430 2,485 800 720 3,047 2,050 875 1,080 6,330 1,120 2,203 1,403 — 1,450 2,910 30,180 44,547 31,854 13,880 49,129 43,466 50,817 19,311 34,354 57,488 6,438 37,415 41,179 38,971 28,983 36,776 5,736 12,566 64,711 55,048 45,240 15,664 27,357 27,494 12,462 26,432 48,366 43,191 22,163 14,215 109,388 9,928 26,147 14,756 21,164 24,567 19,969 12,461 9,655 114,794 14,557 28,761 35,893 — 19,389 35,838 — 3,808 39,014 — 7,103 — 22,079 — 1,957 1,900 1,680 2,660 69 14,431 10,664 43,423 35,533 45,991 East Setauket, NY . . . . . . . — 4,920 37,354 2,262 10,054 5,499 2,979 2,850 4,940 3,610 1,349 2,522 2,750 — 2,324 2,888 3,229 3,551 2,463 7,217 3,191 5,880 1,730 740 1,750 1,324 — 1,139 1,594 1,857 5,636 2,128 2,591 2,060 2,438 2,487 840 779 3,142 2,050 893 1,080 6,330 1,145 2,257 1,480 1,946 1,470 2,933 31,799 49,279 31,854 13,880 49,914 44,469 53,320 20,156 35,298 60,512 7,315 38,909 42,650 40,325 30,155 38,047 18,048 12,566 65,885 56,468 45,630 15,782 28,375 31,048 13,536 27,141 49,164 43,191 22,802 14,215 119,409 11,019 27,347 16,125 21,807 25,507 21,145 13,483 10,267 115,431 15,442 28,860 38,884 28,510 22,379 36,817 7,206 12,387 2,272 969 7,822 8,242 941 3,377 5,935 — 4,377 6,804 7,196 6,743 4,188 3,082 106 2,665 12,242 9,664 5,956 9 5,481 779 1,253 2,148 6,929 6,942 3,583 1,690 19,242 1,963 4,369 2,433 4,171 5,378 4,508 2,575 2,202 7,170 3,328 2,865 7,930 4,979 3,490 7,299 2011 2013 2015 2014 2012 2012 2016 2013 2013 2016 2013 2013 2013 2013 2013 2015 2014 2013 2011 2012 2013 2016 2011 2016 2015 2015 2013 2013 2013 2014 2007 2013 2013 2013 2011 2013 2011 2013 2011 2015 2011 2015 2006 2013 2012 2012 1999 246A Federal Road 2009 400 Summit Blvd 1989 2455 Boulevard Rome 1883 Church Street 2003 500 McHenry Road 2002 455 E. Angeleno Avenue 1985 2721 Willow Street 1990 500 Appleby Line 2005 24 Mall Road 2011 50 Greenleaf Way 1972 25100 Calabasas Road 2003 20 Promenade Way SE 1998 80 Edenwold Drive NW 1998 150 Scotia Landing NW 1989 9229 16th Street SW 2006 2220-162nd Avenue SW 2016 Fernhill Road 2007 127 Cyncoed Road 2009 3535 Manchester Avenue 2001 545 Belmont Lane 2009 1206 West Chatham Street 2015 800 C-Bar Ranch Trail 1998 22 Richardson Road 2002 11000 New Falcon Way 1965 25 Keil Drive North 1997 199 Chelmsford Street 2001 1880 Clarkson Road 2007 High View, Rickmansworth Road 2003 3302 Bonita Road 2014 Bourley Road 2010 5445 Kenwood Road 2001 2053 North Towne Avenue 1998 125 King Street (Rt 3A) 2001 2105 University Park Boulevard 2001 300 Pleasant Street 1990 1142 Dufferin Street 1965 350 West Bay St 2001 751 E Terra Cotta Avenue 1997 3611 Dickason Avenue 2013 3535 N Hall Street 2000 1 Veronica Drive 1997 9 Summer Street 2009 4500 Elmore Ave. 1998 920 Clairemont Avenue 1997 4901 South Monaco Street 2007 8101 E Mississippi Avenue 3,809 40,072 6,394 2013 2003 337 Deer Park Road 2,017 1,900 1,775 2,681 124 15,000 11,438 49,055 37,746 46,783 3,932 2,871 10,839 10,112 7,311 2013 2013 2010 2011 2013 4,975 38,347 5,962 2013 2008 4377 St. Jean Blvd 2006 1650 Susquehanna Road 1990 6470 Post Rd 2000 111 South Shore Drive 2002 1555 Glen Curtiss Boulevard 2002 1 Sunrise Drive 1,630 10,646 — — 785 1,003 2,503 885 1,022 3,024 877 1,566 1,565 1,461 1,292 1,348 16,874 — 1,174 1,420 390 118 1,041 3,554 1,114 714 798 — 695 — 10,021 1,100 1,202 1,409 702 1,035 1,176 1,040 612 637 910 154 3,068 30,456 3,009 1,002 1,059 629 774 5,727 2,234 848 1,047 137 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Eastbourne, UKJ . . . . . . . . . Edgbaston, UKG . . . . . . . . . Edgewater, NJ . . . . . . . . . . . Edison, NJ . . . . . . . . . . . . . . Edmonds, WA . . . . . . . . . . . Edmonton, AB . . . . . . . . . . . Edmonton, AB . . . . . . . . . . . Encinitas, CA . . . . . . . . . . . . Encino, CA . . . . . . . . . . . . . Escondido, CA . . . . . . . . . . . Esher, UKJ . . . . . . . . . . . . . . Fairfax, VA . . . . . . . . . . . . . Fairfield, NJ . . . . . . . . . . . . . Fareham, UKJ . . . . . . . . . . . Flossmoor, IL . . . . . . . . . . . . Folsom, CA . . . . . . . . . . . . . Fort Worth, TX . . . . . . . . . . Fort Worth, TX . . . . . . . . . . Franklin, MA . . . . . . . . . . . . Frome, UKK . . . . . . . . . . . . Fullerton, CA . . . . . . . . . . . . Gahanna, OH . . . . . . . . . . . . Gilbert, AZ . . . . . . . . . . . . . . Gilroy, CA . . . . . . . . . . . . . . Glen Cove, NY . . . . . . . . . . Glenview, IL . . . . . . . . . . . . Golden Valley, MN . . . . . . . Grimsby, ON . . . . . . . . . . . . Grosse Pointe Woods, MI . . Grosse Pointe Woods, MI . . Guelph, ON . . . . . . . . . . . . . Guildford, UKJ . . . . . . . . . . Gurnee, IL . . . . . . . . . . . . . . Hamden, CT . . . . . . . . . . . . . Hampshire, UKJ . . . . . . . . . . Haverhill, MA . . . . . . . . . . . Henderson, NV . . . . . . . . . . — — — — 10,991 9,222 11,914 — — — — — — — — — — — — — 12,537 — 16,042 — — — 19,396 — — — 4,313 — — 14,857 — — — 4,145 — 4,561 1,892 1,650 1,589 2,063 1,460 5,040 1,520 5,783 19 3,120 3,408 1,292 1,490 2,080 1,740 2,430 2,720 1,964 772 2,160 760 4,594 2,090 1,520 636 950 1,430 1,190 5,361 890 1,460 4,172 1,720 880 33,744 — 25,047 32,314 24,449 29,819 37,293 7,721 46,255 24,024 48,361 2,678 43,868 17,970 9,496 32,754 27,888 19,799 30,597 14,813 19,989 11,214 28,246 13,880 35,236 69,288 33,513 5,617 13,662 31,777 7,597 56,494 27,931 24,093 26,035 50,046 29,809 Henderson, NV . . . . . . . . . . 5,572 1,190 11,600 Highland Park, IL . . . . . . . . Hingham, MA . . . . . . . . . . . Holbrook, NY . . . . . . . . . . . Horley, UKJ . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . Hove, UKJ . . . . . . . . . . . . . . Huntington Beach, CA . . . . . Irving, TX . . . . . . . . . . . . . . — — — — — 17,274 — — — — — 2,250 1,440 25,313 32,292 3,957 35,337 2,332 3,830 1,040 1,750 960 1,360 3,808 1,030 12,144 55,674 31,965 15,603 27,598 6,979 31,172 6,823 4,145 2,720 4,564 1,896 1,651 1,638 2,127 1,460 5,040 1,520 5,783 47 3,175 3,408 1,339 1,490 2,085 1,740 2,442 2,720 1,998 787 2,160 1,575 4,615 2,090 1,545 655 950 1,430 1,237 5,361 935 1,487 4,172 1,723 895 33,744 13,969 26,044 33,361 24,989 30,946 38,816 10,098 47,450 25,324 48,361 2,825 44,747 17,970 10,788 32,765 31,100 20,760 33,000 14,813 20,593 12,408 28,718 37,680 36,662 70,830 34,314 5,857 13,912 32,576 7,930 56,494 28,891 25,362 26,035 50,873 30,265 5,511 638 4,349 7,579 2,056 5,496 8,990 4,102 8,407 5,450 6,956 708 7,192 1,699 2,209 2,292 6,747 — 4,550 1,160 3,484 1,870 6,703 9,028 7,045 11,838 5,088 651 2,025 4,721 1,098 8,384 4,033 5,965 4,104 4,973 4,784 2013 2014 2013 2013 2015 2013 2013 2000 2012 2011 2013 2013 2013 2014 2013 2015 2012 2016 2013 2014 2013 2013 2013 2006 2013 2012 2013 2015 2013 2013 2015 2013 2013 2011 2013 2015 2011 1,212 12,078 3,007 2013 2,259 1,440 26,150 32,356 4,895 2,840 2013 2015 2008 6 Upper Kings Drive 2015 Pershore Road 2000 351 River Road 1996 1801 Oak Tree Road 1976 21500 72nd Avenue West 1999 103 Rabbit Hill Court NW 1968 10015 103rd Avenue NW 1988 335 Saxony Rd. 2003 15451 Ventura Boulevard 1987 1500 Borden Rd 2006 42 Copsem Lane 1991 9207 Arlington Boulevard 1998 47 Greenbrook Road 2012 Redlands Lane 2000 19715 Governors Highway 2014 1574 Creekside Drive 2001 2151 Green Oaks Road 2014 7001 Bryant Irvin Road 1999 4 Forge Hill Road 2012 Welshmill Lane 2008 2226 North Euclid Street 1998 775 East Johnstown Road 2008 580 S. Gilbert Road 2007 7610 Isabella Way 1998 39 Forest Avenue 2001 2200 Golf Road 2005 4950 Olson Memorial Highway 1991 84 Main Street East 2006 1850 Vernier Road 2005 21260 Mack Avenue 1978 165 Cole Road 2006 Astolat Way, Peasmarsh 2002 500 North Hunt Club Road 1999 35 Hamden Hills Drive 2006 22-26 Church Road 1997 254 Amesbury Road 2009 1935 Paseo Verde Parkway 2008 1555 West Horizon Ridge Parkway 2005 1601 Green Bay Road 2012 1 Sgt. William B Terry Drive 4,016 36,051 5,617 2013 2001 320 Patchogue Holbrook 2,332 3,830 1,044 1,750 960 1,360 3,886 1,030 12,144 60,789 37,218 15,813 29,136 6,979 32,838 8,244 1,457 11,699 6,026 9 6,194 656 6,231 2,122 2014 2012 2012 2016 2011 2014 2013 2007 Road 2014 Court Lodge Road 1998 2929 West Holcombe Boulevard 1999 505 Bering Drive 2014 10120 Louetta Road 1995 10225 Cypresswood Dr 1987 Furze Hill 2004 7401 Yorktown Avenue 1999 8855 West Valley Ranch Parkway — 16,689 1,000 1,051 541 1,176 1,587 2,377 1,195 1,300 — 175 934 — 1,339 11 3,217 961 2,416 — 638 1,209 472 24,615 1,447 1,542 827 259 250 799 380 — 1,005 1,296 — 831 471 499 847 64 773 — 5,115 5,258 210 1,538 — 1,743 1,421 138 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Johns Creek, GA . . . . . . . . — 1,580 23,285 Kanata, ON . . . . . . . . . . . . . Kansas City, MO . . . . . . . . Kansas City, MO . . . . . . . . Kansas City, MO . . . . . . . . Kelowna, BC . . . . . . . . . . . Kennebunk, ME . . . . . . . . . Kingston, ON . . . . . . . . . . . Kingwood, TX . . . . . . . . . . Kirkland, WA . . . . . . . . . . . Kitchener, ON . . . . . . . . . . Kitchener, ON . . . . . . . . . . Kitchener, ON . . . . . . . . . . Kitchener, ON . . . . . . . . . . La Palma, CA . . . . . . . . . . . Lafayette Hill, PA . . . . . . . Laguna Hills, CA . . . . . . . . Laguna Woods, CA . . . . . . Laguna Woods, CA . . . . . . Lake Zurich, IL . . . . . . . . . Lawrenceville, GA . . . . . . . Leawood, KS . . . . . . . . . . . Lenexa, KS . . . . . . . . . . . . . Leominster, MA . . . . . . . . . Lincroft, NJ . . . . . . . . . . . . Lombard, IL . . . . . . . . . . . . London, UKI . . . . . . . . . . . London, ON . . . . . . . . . . . . London, ON . . . . . . . . . . . . London, ON . . . . . . . . . . . . Longueuil, QC . . . . . . . . . . Los Angeles, CA . . . . . . . . Los Angeles, CA . . . . . . . . Los Angeles, CA . . . . . . . . Los Angeles, CA . . . . . . . . Louisville, KY . . . . . . . . . . Louisville, KY . . . . . . . . . . Lynnfield, MA . . . . . . . . . . Malvern, PA . . . . . . . . . . . . Mansfield, MA . . . . . . . . . . Maple Ridge, BC . . . . . . . . Marieville, QC . . . . . . . . . . Markham, ON . . . . . . . . . . Marlboro, NJ . . . . . . . . . . . Medicine Hat, AB . . . . . . . Memphis, TN . . . . . . . . . . . Meriden, CT . . . . . . . . . . . . Metairie, LA . . . . . . . . . . . . Middletown, CT . . . . . . . . . Middletown, RI . . . . . . . . . Milford, CT . . . . . . . . . . . . — — 5,950 — 5,802 — 4,614 — 24,600 1,473 4,645 3,539 13,146 — — — — — — 15,602 15,328 9,581 — — 16,603 — 835 6,329 — 9,905 — 62,843 — — — 10,977 — — 27,347 8,781 6,762 39,383 — 11,092 — 9,056 13,013 14,916 15,863 11,128 1,689 1,820 1,930 541 2,688 2,700 1,030 480 3,450 640 1,130 1,093 1,341 2,950 1,750 12,820 11,280 9,150 1,470 1,500 2,490 826 944 9 2,130 3,121 987 1,969 1,445 3,992 — — 3,540 — 2,420 1,600 3,165 1,651 3,320 2,875 1,278 3,727 2,222 1,432 1,800 1,500 725 1,430 2,480 3,210 28,670 34,898 39,997 23,962 13,647 30,204 11,416 9,777 38,709 2,744 9,939 7,327 13,939 16,591 11,848 75,926 76,485 57,842 9,830 29,003 32,493 26,251 23,164 19,958 59,943 10,027 8,228 16,985 13,631 23,711 11,430 114,438 19,007 28,050 20,816 20,326 45,200 17,194 57,011 11,922 12,113 48,939 14,888 14,141 17,744 14,874 27,708 24,242 24,628 17,364 362 — 4,138 3,760 52 620 3,199 549 1,033 595 161 437 372 2,419 640 1,738 10,284 7,142 5,246 2,799 507 3,191 599 534 1,268 501 — 473 1,087 570 852 2,034 1,599 1,151 1,122 1,039 333 1,817 1,318 5,846 — 87 1,801 680 137 1,116 1,032 380 1,226 1,577 1,420 139 Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address 1,588 23,639 3,789 2013 2009 11405 Medlock Bridge 1,689 1,845 1,963 541 2,771 3,022 1,061 480 3,515 660 1,167 1,129 1,341 2,966 1,867 12,820 11,280 9,150 1,470 1,508 5,690 836 947 9 2,130 3,121 1,037 2,029 1,598 4,166 — — 3,540 — 2,420 1,600 3,165 1,708 3,431 2,875 1,323 3,848 2,222 1,476 1,800 1,538 725 1,439 2,511 3,213 28,670 39,011 43,724 24,015 14,184 33,081 11,933 10,810 39,239 2,885 10,338 7,663 16,358 17,216 13,469 86,210 83,627 63,088 12,629 29,502 32,484 26,841 23,695 21,226 60,444 10,027 8,651 18,012 14,048 24,388 13,464 116,037 20,158 29,172 21,855 20,659 47,016 18,454 62,747 11,922 12,155 50,620 15,568 14,234 18,860 15,868 28,089 25,458 26,174 18,781 3,951 8,933 10,341 1,713 3,047 9,952 1,144 2,148 6,861 581 1,870 1,801 262 2,835 2,909 — 1,628 1,358 2,074 4,799 6,775 4,937 2,240 3,302 9,202 817 969 2,153 1,155 1,771 2,849 22,542 3,470 547 3,954 3,774 7,489 4,281 13,897 926 927 11,766 2,772 2,156 4,350 4,645 4,051 6,148 6,217 4,973 Road 2005 70 Stonehaven Drive 1980 12100 Wornall Road 1986 6500 North Cosby Ave 2014 6460 North Cosby Avenue 1999 863 Leon Avenue 2006 One Huntington Common Drive 1983 181 Ontario Street 1999 22955 Eastex Freeway 2009 14 Main Street South 1979 164 - 168 Ferfus Avenue 1988 20 Fieldgate Street 1964 290 Queen Street South 2003 1250 Weber Street E 2003 5321 La Palma Avenue 1998 429 Ridge Pike 1988 24903 Moulton Parkway 1987 24441 Calle Sonora 1986 24962 Calle Aragon 2007 550 America Court 2008 1375 Webb Gin House Road 1999 4400 West 115th Street 2006 15055 West 87th Street Parkway 1999 1160 Main Street 2002 734 Newman Springs Road 2009 2210 Fountain Square Dr 2012 71 Hatch Lane 1989 760 Horizon Drive 1953 1486 Richmond Street North 1950 81 Grand Avenue 1989 70 Rue Levis 1971 330 North Hayworth Avenue 2009 10475 Wilshire Boulevard 2001 2051 N. Highland Avenue 2006 4061 Grand View Boulevard 1999 4600 Bowling Boulevard 2010 6700 Overlook Drive 2006 55 Salem Street 1998 324 Lancaster Avenue 1998 25 Cobb Street 2009 12241 224th Street 2002 425 rue Claude de Ramezay 1981 7700 Bayview Avenue 2002 3A South Main Street 1999 223 Park Meadows Drive SE 1999 6605 Quail Hollow Road 2001 511 Kensington Avenue 2009 3732 West Esplanade Ave. S 1999 645 Saybrook Road 1998 303 Valley Road 1999 77 Plains Road 2012 2010 2010 2015 2013 2013 2015 2011 2011 2013 2013 2013 2016 2013 2013 2016 2016 2016 2011 2013 2012 2013 2015 2013 2013 2014 2015 2015 2015 2015 2008 2011 2012 2016 2012 2013 2013 2013 2011 2015 2015 2013 2013 2015 2012 2011 2013 2011 2011 2011 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Milton, ON . . . . . . . . . . . . . Minnetonka, MN . . . . . . . . Minnetonka, MN . . . . . . . . Mission Viejo, CA . . . . . . . Mississauga, ON . . . . . . . . 14,760 13,938 15,959 14,375 9,046 4,542 2,080 920 6,600 1,602 25,321 24,360 29,344 52,118 17,996 Mississauga, ON . . . . . . . . 3,046 873 4,655 Mississauga, ON . . . . . . . . Mississauga, ON . . . . . . . . Mobberley, UKD . . . . . . . . Monterey, CA . . . . . . . . . . . Montgomery Village, MD . . . . . . . . . . . . . . . . . Moose Jaw, SK . . . . . . . . . Mystic, CT . . . . . . . . . . . . . Naperville, IL . . . . . . . . . . . Naperville, IL . . . . . . . . . . . Naples, FL . . . . . . . . . . . . . Nashua, NH . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . Needham, MA . . . . . . . . . . Nepean, ON . . . . . . . . . . . . Newbury, UKJ . . . . . . . . . . Newburyport, MA . . . . . . . Newmarket, UKH . . . . . . . Newton, MA . . . . . . . . . . . . Newton, MA . . . . . . . . . . . . Newton, MA . . . . . . . . . . . . Newtown Square, PA . . . . . Niagara Falls, ON . . . . . . . Niantic, CT . . . . . . . . . . . . . North Andover, MA . . . . . . North Chelmsford, MA . . . North Dartmouth, MA . . . . North Tustin, CA . . . . . . . . Oak Park, IL . . . . . . . . . . . . Oakland, CA . . . . . . . . . . . . Oakton, VA . . . . . . . . . . . . Oakville, ON . . . . . . . . . . . Oakville, ON . . . . . . . . . . . Oakville, ON . . . . . . . . . . . Oceanside, CA . . . . . . . . . . Okotoks, AB . . . . . . . . . . . . Oshawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . 19,440 6,191 — — — 2,507 11,128 — — 57,939 — — — 5,794 — — — 26,992 15,558 — — 6,814 — 21,901 11,542 — — — — — 5,890 10,145 5,306 — 18,174 3,119 10,221 19,153 22,027 6,720 12,149 10,138 13,924 18,783 2,991 2,180 3,649 2,548 5,146 6,440 3,530 582 1,400 1,550 1,540 8,989 1,264 3,900 1,240 1,575 — 1,750 4,071 2,250 2,500 3,360 1,930 1,225 1,320 1,960 880 1,700 2,880 1,250 3,877 2,250 1,252 2,134 1,271 2,160 714 841 1,341 3,454 4,305 2,103 2,963 1,561 3,403 3,411 724 818 35,137 15,158 26,665 29,101 18,246 12,973 18,274 12,237 28,204 119,398 43,026 35,788 32,992 5,770 — 29,187 11,902 43,614 30,681 25,099 14,420 7,963 25,986 34,976 18,478 35,337 18,059 40,383 47,508 37,576 7,382 29,963 13,754 18,352 20,943 7,570 15,425 23,309 39,106 18,421 26,424 18,170 31,090 28,335 4,710 2,165 2,068 1,923 564 4,025 729 270 1,569 842 — 680 5,175 584 860 2,227 887 2,012 492 2,004 1,068 383 15,646 1,063 — 992 1,897 1,508 669 380 4,266 1,459 839 1,463 562 1,058 2,539 1,753 322 1,310 674 3,518 716 363 1,018 1,033 — 2,337 2,093 848 2,159 4,221 215 1,129 140 Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address 4,687 2,376 920 6,600 1,651 27,244 25,987 29,908 56,143 18,675 1,920 4,604 4,241 1,031 3,274 2015 2012 2013 2016 2013 2012 611 Farmstead Drive 1999 500 Carlson Parkway 2006 18605 Old Excelsior Blvd. 1998 27783 Center Drive 1984 1130 Bough Beeches 900 4,899 872 2013 3,778 2,626 5,146 6,440 3,570 600 1,427 1,550 1,540 9,068 1,264 3,900 1,240 1,638 2,850 1,750 4,071 2,263 2,514 3,385 1,941 1,263 1,334 2,019 927 1,700 2,901 1,250 3,900 2,260 1,291 2,214 1,310 2,202 736 882 1,395 3,606 4,305 2,176 3,054 1,612 3,511 3,516 747 702 36,577 15,922 26,665 29,781 23,381 13,539 19,107 14,464 29,091 121,331 43,519 37,792 34,060 6,090 12,796 30,250 11,902 44,593 32,564 26,582 15,078 8,305 30,238 36,377 19,271 36,800 18,600 41,441 50,024 39,319 7,666 31,192 14,389 21,829 21,636 7,892 16,388 24,190 39,106 20,685 28,425 18,966 33,142 32,451 4,902 3,409 4,676 2,359 5,676 4,786 6,912 2,392 4,431 2,868 4,868 8,426 3,149 7,958 — 1,101 85 — 1,212 9,596 7,387 6,339 3,629 1,025 5,525 7,872 3,938 — 2,510 7,219 8,007 6,066 1,400 5,960 2,227 4,566 2,660 1,464 1,400 3,854 2,868 1,506 2,127 1,440 2,360 2,524 904 690 2015 2015 2013 2013 2013 2013 2011 2012 2013 2015 2015 2012 2016 2015 2015 2016 2014 2011 2011 2011 2013 2015 2011 2011 2011 2016 2013 2012 2013 2013 2013 2013 2013 2011 2015 2013 2015 2015 2015 2015 2015 2015 2015 2015 2013 2013 Boulevard 1978 3051 Constitution Boulevard 1988 1490 Rathburn Road East 1989 85 King Street East 2007 Barclay Park, Hall Lane 2009 1110 Cass St. 1993 19310 Club House Road 2001 425 4th Avenue NW 2001 20 Academy Lane Mystic 2013 1936 Brookdale Road 2002 535 West Ogden Avenue 2000 4800 Aston Gardens Way 1999 674 West Hollis Street 1999 4206 Stammer Place 2011 880 Greendale Avenue 1988 1 Mill Hill Road 2016 370 London Road 2015 4 Wallace Bashaw Junior Way 2011 Jeddah Way 1996 2300 Washington Street 1996 280 Newtonville Avenue 1994 430 Centre Street 2004 333 S. Newtown Street Rd. 1991 7860 Lundy’s Lane 2001 417 Main Street 1995 700 Chickering Road 1998 2 Technology Drive 1997 239 Cross Road 2000 12291 Newport Avenue 2004 1035 Madison Street 1999 11889 Skyline Boulevard 1997 2863 Hunter Mill Road 1982 289 and 299 Randall Street 1994 25 Lakeshore Road West 1988 345 Church Street 2005 3500 Lake Boulevard 2010 51 Riverside Gate 1991 649 King Street East 2001 110 Berrigan Drive 1966 2370 Carling Avenue 2005 751 Peter Morand Crescent 1989 1 Eaton Street 2008 691 Valin Street 2006 22 Barnstone Drive 2009 990 Hunt Club Road 2009 2 Valley Stream Drive 1995 1345 Ogilvie Road 1993 370 Kennedy Lane Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Ottawa, ON . . . . . . . . . . . . Overland Park, KS . . . . . . . Palo Alto, CA . . . . . . . . . . . Paramus, NJ . . . . . . . . . . . . Parkland, FL . . . . . . . . . . . . Peabody, MA . . . . . . . . . . . Pembroke, ON . . . . . . . . . . Pittsburgh, PA . . . . . . . . . . Placentia, CA . . . . . . . . . . . Plainview, NY . . . . . . . . . . Plano, TX . . . . . . . . . . . . . . Plano, TX . . . . . . . . . . . . . . Playa Vista, CA . . . . . . . . . Plymouth, MA . . . . . . . . . . Plymouth, MA . . . . . . . . . . Port Perry, ON . . . . . . . . . . Providence, RI . . . . . . . . . . Purley, UKI . . . . . . . . . . . . Queensbury, NY . . . . . . . . . Quincy, MA . . . . . . . . . . . . Rancho Cucamonga, CA . . Rancho Palos Verdes, CA . . . . . . . . . . . . . . . . . Randolph, NJ . . . . . . . . . . . Red Deer, AB . . . . . . . . . . . Red Deer, AB . . . . . . . . . . . Redondo Beach, CA . . . . . . Regina, SK . . . . . . . . . . . . . Regina, SK . . . . . . . . . . . . . Regina, SK . . . . . . . . . . . . . Renton, WA . . . . . . . . . . . . Ridgefield, CT . . . . . . . . . . Riviere-du-Loup, QC . . . . . Riviere-du-Loup, QC . . . . . Rocky Hill, CT . . . . . . . . . . Romeoville, IL . . . . . . . . . . Roseville, MN . . . . . . . . . . Roseville, CA . . . . . . . . . . . Roswell, GA . . . . . . . . . . . . Sacramento, CA . . . . . . . . . Saint-Lambert, QC . . . . . . . Salem, NH . . . . . . . . . . . . . Salinas, CA . . . . . . . . . . . . . Salisbury, UKK . . . . . . . . . Salt Lake City, UT . . . . . . . San Diego, CA . . . . . . . . . . San Diego, CA . . . . . . . . . . San Diego, CA . . . . . . . . . . San Francisco, CA . . . . . . . San Francisco, CA . . . . . . . San Gabriel, CA . . . . . . . . . San Jose, CA . . . . . . . . . . . 10,626 4,795 6,246 9,389 3,405 16,535 — 57,514 6,235 — — — — 28,215 — — — 13,742 9,723 — — — — — — — 12,215 14,375 — 6,937 6,749 13,241 21,150 — 3,258 9,331 10,063 — — — — — 23,342 20,184 — — — — — — — — — — 2,809 1,156 746 1,176 1,540 — 2,840 4,880 — 1,931 1,580 8,480 3,066 3,120 1,750 1,580 1,444 2,550 3,685 2,655 7,365 1,260 1,350 1,480 5,450 1,540 1,247 1,199 — 1,485 1,244 1,539 3,080 3,100 592 1,454 810 854 1,540 3,300 2,080 1,300 10,259 980 5,110 2,720 1,360 4,200 5,810 3,000 5,920 11,800 3,120 2,850 27,299 9,758 7,800 12,764 16,269 39,639 35,728 111,481 — 9,427 18,017 17,076 19,901 59,950 15,390 40,531 34,951 35,055 26,788 21,910 35,161 21,744 12,584 10,055 60,034 46,934 19,283 22,339 9,557 21,148 21,036 24,053 51,824 80,614 7,601 16,848 16,351 12,646 35,877 41,652 6,486 23,394 61,903 32,721 41,424 15,269 19,691 30,707 63,078 27,164 91,639 77,214 15,566 35,098 28,343 10,132 8,198 13,427 17,258 41,554 37,174 113,088 16,949 9,427 18,436 18,739 20,390 60,959 15,808 41,389 35,576 37,059 29,079 21,910 35,161 22,399 13,276 10,667 61,715 47,570 19,984 23,125 10,378 21,892 21,838 26,715 52,407 82,456 7,601 19,353 16,934 67,189 36,553 44,437 7,606 24,321 61,903 34,680 45,420 15,269 21,457 30,995 64,868 27,674 100,120 84,125 16,103 35,545 2,899 1,221 775 1,228 1,728 22 2,851 4,885 2,250 1,931 1,587 8,480 3,174 3,120 1,750 1,584 1,444 2,550 3,799 2,655 7,365 1,260 1,423 1,539 5,450 1,540 1,285 1,238 — 1,531 1,287 1,586 3,103 3,150 592 1,585 909 6,168 1,585 3,300 2,385 1,334 10,259 1,051 5,110 2,720 1,360 4,228 5,810 3,000 5,920 11,800 3,130 2,856 1,134 439 426 715 1,177 1,937 1,457 1,612 19,199 — 427 1,663 597 1,009 418 862 625 2,004 2,405 — — 655 765 671 1,681 636 740 825 821 790 844 2,709 606 1,892 — 2,636 682 59,857 720 2,785 1,425 961 — 2,031 3,996 — 1,766 315 1,790 510 8,480 6,911 548 453 141 5,910 1,620 1,410 1,176 2,992 6,344 5,520 8,239 1,855 1,320 3,346 578 2,923 13,352 9 6,732 3,016 — 2,005 8,265 6,581 1,712 3,180 2,200 10,709 7,337 1,585 1,935 4,750 4,285 3,517 1,931 9,093 8,965 550 1,394 3,612 12,459 5,273 953 1,601 3,601 5,074 6,651 1,088 1,046 5,925 4,114 13,456 3,941 1,674 1,623 2,783 6,132 2013 2013 2013 2015 2012 2013 2013 2015 2013 2012 2013 2016 2013 2013 2016 2013 2015 2016 2015 2011 2012 2015 2011 2013 2012 2013 2015 2015 2011 2013 2013 2015 2011 2015 2015 2015 2011 2006 2013 2016 2012 2013 2015 2011 2016 2014 2011 2011 2012 2013 2016 2016 2013 2011 1998 43 Aylmer Avenue 1998 1351 Hunt Club Road 1999 140 Darlington Private 1987 10 Vaughan Street 1998 9201 Foster 2007 2701 El Camino Real 1998 567 Paramus Road 2000 5999 University Drive 1994 73 Margin Street 1999 1111 Pembroke Street West 2009 900 Lincoln Club Dr. 1987 1180 N Bradford Avenue 2001 1231 Old Country Road 2006 4800 West Parker Road 2014 3690 Mapleshade Lane 2006 5555 Playa Vista Drive 1998 157 South Street 1970 60 Stafford Hill 2009 15987 Simcoe Street 1998 700 Smith Street 2005 21 Russell Hill Road 1999 27 Woodvale Road 1998 2003 Falls Boulevard 2001 9519 Baseline Road 2004 5701 Crestridge Road 2006 648 Route 10 West 2004 3100 - 22 Street 2004 10 Inglewood Drive 1957 514 North Prospect Ave 1999 3651 Albert Street 2004 3105 Hillsdale Street 1992 1801 McIntyre Street 2007 104 Burnett Avenue South 1998 640 Danbury Road 1956 35 des Cedres 1993 230-235 rue Des Chenes 2000 1160 Elm Street 2010 605 S Edward Dr. 2002 2555 Snelling Avenue, North 2000 5161 Foothills Boulevard 1997 75 Magnolia Street 2004 345 Munroe Street 1989 1705 Avenue Victoria 2000 242 Main Street 1990 1320 Padre Drive 2013 Shapland Close 1986 1430 E. 4500 S. 2011 2567 Second Avenue 2001 13075 Evening Creek Drive S 2003 810 Turquoise Street 1998 1550 Sutter Street 1923 1601 19th Avenue 2005 8332 Huntington Drive 2009 1420 Curvi Drive Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition San Jose, CA . . . . . . . . . . . San Jose, CA . . . . . . . . . . . San Juan Capistrano, CA . . . . . . . . . . . . . . . . . San Rafael, CA . . . . . . . . . . San Ramon, CA . . . . . . . . . Sandy Springs, GA . . . . . . . Santa Maria, CA . . . . . . . . . — — — — — — — Santa Monica, CA . . . . . . . 19,551 Santa Rosa, CA . . . . . . . . . Saskatoon, SK . . . . . . . . . . Saskatoon, SK . . . . . . . . . . Schaumburg, IL . . . . . . . . . Scottsdale, AZ . . . . . . . . . . Seal Beach, CA . . . . . . . . . Seattle, WA . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . Sevenoaks, UKJ . . . . . . . . . Severna Park, MD . . . . . . . Shelburne, VT . . . . . . . . . . Shelby Township, MI . . . . . Shrewsbury, MA . . . . . . . . Sidcup, UKI . . . . . . . . . . . . Simi Valley, CA . . . . . . . . . Simi Valley, CA . . . . . . . . . Solihull, UKG . . . . . . . . . . Solihull, UKG . . . . . . . . . . Solihull, UKG . . . . . . . . . . Sonning, UKJ . . . . . . . . . . . Sonoma, CA . . . . . . . . . . . . South Windsor, CT . . . . . . Spokane, WA . . . . . . . . . . . Spokane, WA . . . . . . . . . . . St. Albert, AB . . . . . . . . . . . St. John’s, NL . . . . . . . . . . . Stittsville, ON . . . . . . . . . . . Stockport, UKD . . . . . . . . . Studio City, CA . . . . . . . . . Sugar Land, TX . . . . . . . . . Sun City, FL . . . . . . . . . . . . Sun City, FL . . . . . . . . . . . . Sun City West, AZ . . . . . . . Sunnyvale, CA . . . . . . . . . . Surrey, BC . . . . . . . . . . . . . Surrey, BC . . . . . . . . . . . . . Sutton, UKI . . . . . . . . . . . . Suwanee, GA . . . . . . . . . . . Sway, UKJ . . . . . . . . . . . . . Swift Current, SK . . . . . . . . Tacoma, WA . . . . . . . . . . . Tacoma, WA . . . . . . . . . . . Tacoma, WA . . . . . . . . . . . — 4,280 10,080 — — — 48,540 10,539 — — 19,178 16,207 — — — — — — — — — — — — 8,616 6,063 4,732 — — — 21,636 24,378 12,026 — 7,047 16,391 — — — 2,248 18,080 — — 3,280 46,823 11,900 27,647 1,390 1,620 8,700 2,214 6,050 5,250 2,250 981 1,382 2,460 2,500 6,204 6,790 1,150 6,181 — 720 1,040 950 7,446 3,200 5,510 5,070 3,571 — 5,644 2,820 3,000 3,200 2,580 1,145 706 1,175 4,369 4,006 960 6,521 5,040 1,250 5,420 3,605 4,552 — 1,560 4,145 492 2,400 1,535 4,170 6,942 27,392 72,223 8,360 50,658 28,340 26,273 13,905 17,609 22,863 3,890 72,954 85,369 19,887 40,240 67,623 31,041 26,344 26,824 56,570 16,664 51,406 43,297 26,053 — 42,155 21,890 29,295 25,064 25,342 17,863 11,765 17,397 25,018 25,307 31,423 48,476 50,923 21,778 41,682 18,818 22,338 — 11,538 15,508 10,119 35,053 6,068 73,377 1,833 2,606 1,304 1,308 6,220 552 2,450 767 1,634 639 714 980 1,507 1,232 2,103 1,002 — 4,391 1,833 486 924 — 580 4,123 — — 12,436 — 1,352 2,630 558 306 851 — 748 — 807 1,535 1,244 1,383 1,030 1,564 795 1,380 18,628 742 — 381 413 39 7,687 142 Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address 3,280 48,656 8,350 2012 2002 500 S Winchester Boulevard 11,900 30,253 860 2016 2002 4855 San Felipe Road 1,390 1,620 8,700 2,220 6,089 5,263 2,250 1,011 1,425 2,479 2,500 6,229 6,825 1,150 6,181 — 772 1,093 950 7,446 3,217 5,510 5,070 3,571 1,851 5,644 2,820 3,099 3,271 2,639 1,180 706 1,211 4,369 4,040 960 6,560 5,066 1,271 5,420 3,716 4,692 4,096 1,560 4,145 507 2,457 1,535 4,170 8,246 28,700 78,443 8,905 53,069 29,094 27,907 14,514 18,280 23,824 3,324 1,610 1,388 2,093 11,991 4,526 738 2,185 2,719 4,509 2000 2016 2016 2012 2011 2013 2016 2013 2013 2013 2001 30311 Camino Capistrano 2001 111 Merrydale Road 1992 9199 Fircrest Lane 1997 5455 Glenridge Drive NE 2001 1220 Suey Road 2004 1312 15th Street 2001 4225 Wayvern Drive 1999 220 24th Street East 2004 1622 Acadia Drive 2001 790 North Plum Grove Road 5,397 1,354 2008 1998 9410 East Thunderbird 74,161 87,437 20,889 40,240 72,015 32,821 26,777 27,747 56,570 17,227 55,529 43,297 26,053 10,585 42,155 23,241 31,826 25,551 25,589 18,679 11,765 18,109 25,018 26,080 32,958 49,680 52,280 22,787 43,246 19,503 23,578 14,532 12,280 15,508 10,485 35,408 6,107 81,064 15,443 15,599 1,499 7,403 2,437 6,165 3,961 2,398 11,400 3,877 1,175 7,435 4,584 162 6,711 651 7,537 6,047 4,897 4,394 842 2,752 4,828 4,965 7,509 4,592 4,325 3,630 7,780 4,767 6,114 10 2,486 2,033 1,815 6,180 777 475 Road 2004 3850 Lampson Avenue 2009 5300 24th Avenue NE 1995 11039 17th Avenue 2009 64 - 70 Westerham Road 1997 43 W McKinsey Road 1988 687 Harbor Road 2006 46471 Hayes Road 1997 3111 Main Street 2000 Frognal Avenue 2009 190 Tierra Rejada Road 2003 5300 E Los Angeles Avenue 2009 1270 Warwick Road 2007 1 Worcester Way 2016 Warwick Road 2009 Old Bath Rd. 2005 91 Napa Road 1999 432 Buckland Road 2001 3117 E. Chaser Lane 1999 1110 E. Westview Ct. 2005 78C McKenney Avenue 2005 64 Portugal Cove Road 1996 1340 - 1354 Main Street 2008 1 Dairyground Road 2004 4610 Coldwater Canyon Avenue 1996 1221 Seventh St 1995 231 Courtyards 1999 1311 Aston Gardens Court 1998 13810 West Sandridge Drive 2002 1039 East El Camino Real 2000 16028 83rd Avenue 1987 15501 16th Avenue 2016 123 Westmead Road 2000 4315 Johns Creek Parkway 2008 Sway Place 2001 301 Macoun Drive 2008 7290 Rosemount Circle 2012 7290 Rosemount Circle 1987 8201 6th Avenue 2013 2011 2015 2012 2016 2011 2013 2015 2012 2013 2016 2012 2013 2015 2013 2016 2011 2013 2013 2014 2015 2013 2013 2013 2011 2015 2015 2012 2012 2013 2013 2015 2012 2014 2013 2011 2015 2016 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Tampa, FL . . . . . . . . . . . . . 69,330 4,910 114,148 Tewksbury, MA . . . . . . . . . The Woodlands, TX . . . . . . Toledo, OH . . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . — — — 17,354 9,601 13,336 22,989 4,335 1,445 8,351 Toronto, ON . . . . . . . . . . . . 18,699 Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Toronto, ON . . . . . . . . . . . . Trumbull, CT . . . . . . . . . . . Tucson, AZ . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . Tulsa, OK . . . . . . . . . . . . . . Tustin, CA . . . . . . . . . . . . . Upland, CA . . . . . . . . . . . . Upper St Claire, PA . . . . . . Vancouver, BC . . . . . . . . . . Vankleek Hill, ON . . . . . . . Vaudreuil, QC . . . . . . . . . . Venice, FL . . . . . . . . . . . . . Victoria, BC . . . . . . . . . . . . Victoria, BC . . . . . . . . . . . . Victoria, BC . . . . . . . . . . . . Virginia Water, UKJ . . . . . Walnut Creek, CA . . . . . . . Walnut Creek, CA . . . . . . . Waltham, MA . . . . . . . . . . . Warwick, RI . . . . . . . . . . . . Washington, DC . . . . . . . . . Waterbury, CT . . . . . . . . . . Wayland, MA . . . . . . . . . . . Welland, ON . . . . . . . . . . . Wellesley, MA . . . . . . . . . . West Babylon, NY . . . . . . . West Bloomfield, MI . . . . . West Hills, CA . . . . . . . . . . 1,027 1,700 32,956 23,795 4,528 — — — — — 14,862 994 8,348 64,425 7,502 6,916 7,756 — — — — 15,390 31,489 23,854 — 6,637 — — — — West Vancouver, BC . . . . . 19,151 Westbourne, UKK . . . . . . . Westford, MA . . . . . . . . . . Weston, MA . . . . . . . . . . . . Weybridge, UKJ . . . . . . . . . Weymouth, UKK . . . . . . . . White Oak, MD . . . . . . . . . — — — — — — Wilbraham, MA . . . . . . . . . 10,773 Wilmington, DE . . . . . . . . . — 2,350 480 2,040 2,927 5,082 2,040 5,132 2,480 1,079 2,513 3,400 1,361 1,447 5,304 2,850 830 1,330 1,500 840 3,160 1,102 24,122 389 1,852 6,820 2,856 3,681 2,476 7,106 3,700 24,118 12,379 47,129 20,713 25,493 19,822 41,657 7,571 5,364 19,695 32,757 2,915 3,918 53,488 37,685 6,179 21,285 20,861 15,299 42,596 13,455 42,675 2,960 14,214 100,501 18,038 15,774 15,379 29,937 12,467 10,320 100,890 2,462 2,400 4,000 2,460 1,207 983 4,690 3,960 1,040 2,600 7,059 5,441 1,440 1,160 7,899 2,591 2,304 660 1,040 40,062 24,635 69,154 39,547 27,462 7,530 77,462 47,085 12,300 7,521 28,155 41,420 32,607 6,200 48,240 16,551 24,768 17,639 23,338 1,699 1,779 787 3,125 1,203 1,298 — 3,422 508 257 897 1,483 233 264 2,399 1,395 3,645 3,318 2,912 577 3 614 2,620 215 — 1,225 745 717 980 314 1,397 9,225 1,115 1,420 909 2,511 1,163 — 111 912 564 477 1,578 — 67 812 — — 1,417 835 691 143 Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address 4,950 115,807 8,042 2015 2001 12951 W Linebaugh 2,350 480 2,144 3,017 5,243 2,040 5,290 2,556 1,112 2,602 3,509 1,405 1,491 5,467 2,927 905 1,350 1,551 840 3,160 1,102 37,543 401 1,852 6,832 2,944 3,795 2,554 5,419 3,794 25,897 13,166 50,150 21,826 26,629 19,822 44,921 8,003 5,588 20,504 34,131 3,104 4,137 55,725 39,004 9,749 24,583 23,722 15,876 42,600 14,069 31,874 3,164 14,214 101,714 18,695 16,377 16,281 31,938 13,770 10,320 110,115 2,486 2,407 4,002 2,495 1,307 983 4,690 3,960 1,060 2,610 7,276 5,441 1,440 1,160 7,899 2,591 2,316 685 1,129 41,153 26,048 70,061 42,023 28,525 7,530 77,573 47,997 12,844 7,988 29,516 41,420 32,674 7,012 48,240 16,551 26,173 18,449 23,940 — 2,657 12,012 1,861 3,841 2,030 5,740 1,305 917 2,694 6,106 952 896 13,210 9,228 1,453 5,283 5,481 2,957 2,781 2,828 5,207 630 1,099 7,572 3,741 3,384 1,269 5,473 3,120 2,085 4,199 7,115 10,870 12,656 4,755 702 7,260 6,886 2,159 2,083 5,545 6,812 2,480 1,004 9,412 1,099 3,846 3,935 3,910 Avenue 2006 2000 Emerald Court 1999 7950 Bay Branch Dr 1985 3501 Executive Parkway 1900 54 Foxbar Road 1988 645 Castlefield Avenue 1999 4251 Dundas Street West 1964 10 William Morgan Drive 1971 123 Spadina Road 1982 25 Centennial Park Road 2002 305 Balliol Street 1973 1055 and 1057 Don Mills Road 1985 3705 Bathurst Street 1987 1340 York Mills Road 1988 8 The Donway East 1998 2750 Reservoir Avenue 1997 5660 N. Kolb Road 1986 8887 South Lewis Ave 1984 9524 East 71st St 1965 240 East 3rd St 2014 2419 North Euclid Avenue 2005 500 Village Drive 1974 2803 West 41st Avenue 1987 48 Wall Street 1975 333 rue Querbes 2002 1000 Aston Gardens Drive 1974 3000 Shelbourne Street 1988 3051 Shelbourne Street 1990 3965 Shelbourne Street 2002 Christ Church Road 1998 2175 Ygnacio Valley Road 1988 1580 Geary Road 2000 126 Smith Street 1998 75 Minnesota Avenue 2004 5111 Connecticut Avenue NW 1998 180 Scott Road 1997 285 Commonwealth Road 2006 110 First Street 2012 23 & 27 Washington Street 2003 580 Montauk Highway 2000 7005 Pontiac Trail 2002 9012 Topanga Canyon Road 1987 2095 Marine Drive 2006 16-18 Poole Road 2013 108 Littleton Road 1998 135 North Avenue 2008 Ellesmere Road 2013 Cross Road 2002 11621 New Hampshire Avenue 2000 2387 Boston Road 2004 2215 Shipley Street 2016 2011 2010 2015 2015 2015 2015 2015 2013 2013 2013 2013 2013 2013 2011 2012 2010 2010 2011 2015 2013 2015 2013 2015 2015 2013 2013 2015 2012 2013 2016 2015 2011 2013 2011 2013 2015 2015 2013 2013 2013 2013 2013 2015 2013 2013 2014 2013 2011 2013 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Winchester, UKJ . . . . . . . . Winnipeg, MB . . . . . . . . . . Winnipeg, MB . . . . . . . . . . Winnipeg, MB . . . . . . . . . . Wolverhampton, UKG . . . . Woodbridge, CT . . . . . . . . . Woodland Hills, CA . . . . . . Worcester, MA . . . . . . . . . . Yarmouth, ME . . . . . . . . . . Yonkers, NY . . . . . . . . . . . Yorkton, SK . . . . . . . . . . . . Seniors housing operating . . . . . . . . . . . . . . . . total — 13,116 16,190 13,111 — — — 13,496 16,811 — 3,384 6,009 1,960 1,276 1,317 2,941 1,370 3,400 1,140 450 3,962 467 29,405 38,612 21,732 15,609 8,922 14,219 20,478 21,664 27,711 50,107 8,762 — 1,973 894 1,631 — 1,180 742 993 1,185 1,341 355 6,009 2,024 1,315 1,357 2,941 1,426 3,436 1,156 470 3,967 476 29,405 40,521 22,586 17,200 8,922 15,343 21,183 22,640 28,876 51,443 9,102 5,367 10,618 3,765 2,245 2,316 4,691 4,005 4,797 5,706 7,956 1,536 2012 2013 2013 2015 2013 2011 2013 2011 2011 2013 2013 2010 Stockbridge Road 1999 857 Wilkes Avenue 1988 3161 Grant Avenue 1999 125 Portsmouth Boulevard 2008 73 Wergs Road 1998 21 Bradley Road 2005 20461 Ventura Boulevard 1999 340 May Street 1999 27 Forest Falls Drive 2005 65 Crisfield Street 2001 94 Russell Drive $2,400,836 $1,085,554 $11,775,094 $807,677 $1,151,566 $12,516,758 $1,791,579 144 Welltower Inc. Schedule III Real Estate and Accumulated Depreciation December 31, 2016 (Dollars in thousands) Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Outpatient medical: Akron, OH . . . . . . . . . . . . . . . $ — $ Allen, TX . . . . . . . . . . . . . . . Alpharetta, GA . . . . . . . . . . . Alpharetta, GA . . . . . . . . . . . Alpharetta, GA . . . . . . . . . . . Alpharetta, GA . . . . . . . . . . . Alpharetta, GA . . . . . . . . . . . Arcadia, CA . . . . . . . . . . . . . Arlington, TX . . . . . . . . . . . . Atlanta, GA . . . . . . . . . . . . . . Atlanta, GA . . . . . . . . . . . . . . — — — — — — — — — — Atlanta, GA . . . . . . . . . . . . . . 25,347 Bardstown, KY . . . . . . . . . . . 1,928 Bartlett, TN . . . . . . . . . . . . . . Bel Air, MD . . . . . . . . . . . . . Bellevue, NE . . . . . . . . . . . . . Bettendorf, IA . . . . . . . . . . . . Beverly Hills, CA . . . . . . . . . Beverly Hills, CA . . . . . . . . . Beverly Hills, CA . . . . . . . . . Beverly Hills, CA . . . . . . . . . Beverly Hills, CA . . . . . . . . . Birmingham, AL . . . . . . . . . . Birmingham, AL . . . . . . . . . . Birmingham, AL . . . . . . . . . . Boardman, OH . . . . . . . . . . . Boca Raton, FL . . . . . . . . . . . Boca Raton, FL . . . . . . . . . . . Boerne, TX . . . . . . . . . . . . . . Boynton Beach, FL . . . . . . . . Boynton Beach, FL . . . . . . . . Boynton Beach, FL . . . . . . . . Boynton Beach, FL . . . . . . . . Bradenton, FL . . . . . . . . . . . . Bradenton, FL . . . . . . . . . . . . Bridgeton, MO . . . . . . . . . . . Buckhurst Hill, UKH . . . . . . Burleson, TX . . . . . . . . . . . . . Burnsville, MN . . . . . . . . . . . Carmel, IN . . . . . . . . . . . . . . . Carmel, IN . . . . . . . . . . . . . . . Castle Rock, CO . . . . . . . . . . Cedar Grove, WI . . . . . . . . . . Charleston, SC . . . . . . . . . . . — — — — — — — 33,729 78,271 — — — — — — — — — — — — — — — — — — — — — 821 726 476 1,862 548 773 1,769 5,408 82 4,931 1,947 — — 187 — — — 20,766 18,863 19,863 32,603 52,772 52 124 476 80 31 109 50 2,048 2,048 214 1,184 1,035 450 11,597 10 — 2,280 $ 12,105 $ 14,196 14,757 — 17,103 18,902 36,152 23,219 18,243 18,720 24,248 43,425 — 15,015 — 16,680 7,110 40,730 1,192 31,690 28,639 87,192 10,201 11,733 18,726 12,161 12,312 34,002 13,120 7,692 7,403 5,611 40,369 9,799 4,298 21,084 49,243 12,611 31,596 19,238 2,026 21,559 80 113 2,773 13,004 618 25,928 — 412 31 — 205 522 594 3,343 295 6,650 1,687 611 8,238 1,889 24,708 — 73 124 — 156 2 — 503 1,235 1,881 10 88 2,588 — 588 1,261 8,279 2,175 30 — — — 401 391 425 26 571 — 53 $ 821 726 476 1,862 548 773 1,769 5,618 82 5,301 1,947 — 274 187 — — — 20,766 18,863 19,863 32,603 52,772 52 124 476 80 50 214 50 2,048 2,048 270 13,963 1,184 1,035 450 11,597 10 — 2,280 $ 12,105 $ 2,050 14,607 14,789 — 17,308 19,424 36,745 26,352 18,537 25,000 25,934 44,036 7,964 16,904 24,708 16,680 7,183 40,854 1,192 31,846 28,642 87,192 10,704 12,967 20,607 12,170 12,381 36,485 13,120 8,280 8,664 13,834 41,905 9,829 4,298 21,084 49,243 13,012 31,987 19,663 3,626 3,798 — 5,331 4,755 10,190 8,913 1,941 9,325 5,558 10,358 561 5,734 464 4,032 389 2,755 332 2,334 2,918 5,720 3,496 4,127 6,776 3,768 2,548 12,111 3,067 3,253 3,324 4,708 7,314 1,037 498 5,382 2,263 3,068 4,373 6,292 2012 2012 2011 2011 2011 2011 2011 2006 2012 2006 2012 2012 2010 2007 2014 2010 2013 2015 2015 2015 2015 2015 2006 2006 2006 2010 2012 2006 2011 2006 2006 2007 2013 2014 2014 2010 2015 2011 2013 2011 2010 701 White Pond Drive 2006 1105 N Central Expressway 2003 11975 Morris Road 1900 940 North Point Parkway 2007 3300 Old Milton Parkway 1993 3400-A Old Milton Parkway 1999 3400-C Old Milton Parkway 1984 301 W. Huntington Drive 2012 902 W. Randol Mill Road 1991 755 Mt. Vernon Hwy. 1984 975 Johnson Ferry Road 2006 5670 Peachtree-Dunwoody Road 2006 4359 New Shepherdsville Rd 2004 2996 Kate Bond Rd. 2016 12 Medstar Boulevard 2010 2510 Bellevue Medical Center Drive 2014 2140 53rd Avenue 1946 9675 Brighton Way 1955 415 North Bedford 1946 416 North Bedford 1950 435 North Bedford 1989 436 North Bedford 1971 801 Princeton Avenue SW 1985 817 Princeton Avenue SW 1989 833 Princeton Avenue SW 2007 8423 Market St 1993 9960 S. Central Park Boulevard 1995 9970 S. Central Park Blvd. 2007 134 Menger Springs Road 1995 8188 Jog Rd. 1997 8200 Jog Road 1996 10075 Jog Rd. 1995 10301 Hagen Ranch Road 1975 315 75th Street West 2006 7005 Cortez Road West 2006 12266 DePaul Dr 2013 High Road 2007 12001 South Freeway 2014 14101 Fairview Dr 2005 12188-A North Meridian Street 2,026 21,586 7,140 2011 2007 12188-B North Meridian 79 113 2,815 13,576 618 25,939 1,679 154 2,900 2014 2010 2014 Street 2013 2352 Meadows Boulevard 1986 313 S. Main St. 2009 325 Folly Road 145 25,399 13,324 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Cincinnati, OH . . . . . . . . . . . Claremore, OK . . . . . . . . . . . Clarkson Valley, MO . . . . . . Clear Lake, TX . . . . . . . . . . . Columbia, MD . . . . . . . . . . . Columbia, MD . . . . . . . . . . . Coon Rapids, MN . . . . . . . . . Cypress, TX . . . . . . . . . . . . . Cypress, TX . . . . . . . . . . . . . Dade City, FL . . . . . . . . . . . . Dallas, TX . . . . . . . . . . . . . . . Dallas, TX . . . . . . . . . . . . . . . Dallas, TX . . . . . . . . . . . . . . . Dayton, OH . . . . . . . . . . . . . . Deerfield Beach, FL . . . . . . . Delray Beach, FL . . . . . . . . . Durham, NC . . . . . . . . . . . . . Edina, MN . . . . . . . . . . . . . . . El Paso, TX . . . . . . . . . . . . . . Everett, WA . . . . . . . . . . . . . Fenton, MO . . . . . . . . . . . . . . Fenton, MO . . . . . . . . . . . . . . Flower Mound, TX . . . . . . . . Flower Mound, TX . . . . . . . . Flower Mound, TX . . . . . . . . Fort Wayne, IN . . . . . . . . . . . Fort Worth, TX . . . . . . . . . . . Fort Worth, TX . . . . . . . . . . . Franklin, TN . . . . . . . . . . . . . — — — — — — — — — — — — — — — — — — — — 11,258 5,345 — — — — — — — Franklin, WI . . . . . . . . . . . . . 4,445 Frisco, TX . . . . . . . . . . . . . . . Frisco, TX . . . . . . . . . . . . . . . Gallatin, TN . . . . . . . . . . . . . Gig Harbor, WA . . . . . . . . . . Glendale, CA . . . . . . . . . . . . . Grand Prairie, TX . . . . . . . . . Grapevine, TX . . . . . . . . . . . . Grapevine, TX . . . . . . . . . . . . — — — — — — — — Green Bay, WI . . . . . . . . . . . 6,053 Green Bay, WI . . . . . . . . . . . Green Bay, WI . . . . . . . . . . . Greeneville, TN . . . . . . . . . . . Greenwood, IN . . . . . . . . . . . Greenwood, IN . . . . . . . . . . . Grenwood, IN . . . . . . . . . . . . Harker Heights, TX . . . . . . . . High Point, NC . . . . . . . . . . . Highland, IL . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . — — — — — — — — — — — — — — — 132 — — 2,333 23 — 1,287 2,985 1,211 — 137 462 730 2,408 1,882 1,212 310 677 4,842 958 369 737 4,164 4,620 1,105 462 401 2,338 6,872 — — 20 — 37 981 — 3,365 — — — 970 8,316 1,262 2,098 1,907 2,659 — — 17,880 12,829 35,592 13,882 19,232 33,885 26,679 — — 5,511 — 28,690 52,488 6,919 7,809 34,767 22,858 15,132 17,075 26,010 27,485 13,911 9,654 27,529 — 22,836 26,020 6,099 12,138 7,550 18,635 15,309 21,801 — 18,398 6,086 5,943 15,669 14,891 20,098 11,696 10,104 26,384 7,045 21,538 3,575 29,069 8,834 — 135 811 — — 12 — 1,106 — — — 15,541 3,395 36 85 137 6,015 1 263 2,132 — 329 49 71 80 — — 218 — 2,449 — 1,443 2,314 533 30,890 1,207 — 4,778 — — — — 73 — 645 1 — 163 — — 132 — — 2,333 23 — 1,287 2,985 1,211 122 137 462 730 2,540 2,152 1,212 310 677 4,842 958 369 737 4,164 4,620 1,105 462 401 2,338 6,872 — — 20 80 37 981 2,081 3,365 — — — 970 8,316 1,262 2,098 1,907 2,659 — 10,403 10,403 18,015 13,640 35,592 13,882 19,243 33,885 27,785 — — 5,511 15,419 32,085 52,524 7,005 7,814 40,512 22,859 15,395 19,208 26,010 27,814 13,961 9,724 27,609 — 22,836 26,238 6,099 14,587 7,550 20,078 17,623 22,334 30,810 19,605 6,086 8,640 15,669 14,891 20,098 11,696 10,178 26,384 7,691 21,538 3,575 29,232 8,834 — 2,151 4,900 9,599 810 3,412 1,039 3,124 — — 1,078 421 11,242 8,297 2,165 2,872 15,966 2,375 3,791 7,613 5,637 4,826 1,666 807 2,525 — 3,707 2,785 639 4,973 1,976 6,460 6,401 6,053 1,481 5,747 1,490 802 2,170 3,442 4,557 3,683 2,894 4,763 863 1,761 387 4,463 999 3 2012 2007 2009 2013 2012 2015 2013 2016 2016 2011 2013 2006 2012 2011 2011 2006 2013 2010 2006 2010 2013 2013 2015 2014 2014 2012 2012 2014 2007 2010 2007 2007 2010 2010 2007 2012 2014 2014 2010 2010 2010 2010 2012 2014 2014 2011 2012 2012 2011 5,837 33,128 9 5,837 33,137 8,093 2012 2013 3301 Mercy West Boulevard 2005 1501 N. Florence Ave. 2010 15945 Clayton Rd 2014 1010 South Ponds Drive 2002 10700 Charter Drive 1982 5450 & 5500 Knoll N Drive 2014 11850 Blackfoot Street NW 1900 14940 Mueschke Road 1900 13105 Wortham Center Drive 1998 13413 US Hwy 301 2014 8196 Walnut Hill Lane 1995 9330 Poppy Dr. 2004 7115 Greenville Avenue 1988 1530 Needmore Road 2001 1192 East Newport Center Drive 1985 5130-5150 Linton Blvd. 2012 1823 Hillandale Road 2003 8100 W 78th St 1997 2400 Trawood Dr. 2011 13020 Meridian Ave. S. 2009 1011 Bowles Avenue 2009 1055 Bowles Avenue 2014 2560 Central Park Avenue 2012 4370 Medical Arts Drive 1900 Medical Arts Drive 2004 7916 Jefferson Boulevard 2012 10840 Texas Health Trail 2007 7200 Oakmont Boulevard 1988 100 Covey Drive 1984 9200 W. Loomis Rd. 2004 4401 Coit Road 2004 4461 Coit Road 1997 300 Steam Plant Rd 2009 11511 Canterwood Blvd NW 2002 222 W. Eulalia St. 2009 2740 N State Hwy 360 2002 2040 W State Hwy 114 2002 2020 W State Hwy 114 2002 2253 W. Mason St. 2002 2845 Greenbrier Road 2002 2845 Greenbrier Road 2005 438 East Vann Rd 2010 1260 Innovation Parkway 2010 333 E County Line Road 2013 3000 S State Road 135 2012 E Central Texas Expressway 2010 4515 Premier Drive 2013 12860 Troxler Avenue 1900 15655 Cypress Woods Medical Drive 2005 15655 Cypress Woods Medical Drive 3,102 378 91 32,323 31,206 10,613 910 — 1,217 3,242 378 91 33,094 31,206 11,830 3,999 6,893 3,098 2014 2012 2012 2014 1900 N Loop W Freeway 1981 18100 St John Drive 1986 2060 Space Park Drive 146 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Houston, TX . . . . . . . . . . . . . Houston, TX . . . . . . . . . . . . . Hudson, OH . . . . . . . . . . . . . Humble, TX . . . . . . . . . . . . . Jackson, MI . . . . . . . . . . . . . . Jupiter, FL . . . . . . . . . . . . . . . Jupiter, FL . . . . . . . . . . . . . . . — — — — — — — Kenosha, WI . . . . . . . . . . . . . 6,110 Killeen, TX . . . . . . . . . . . . . . Kyle, TX . . . . . . . . . . . . . . . . La Jolla, CA . . . . . . . . . . . . . La Jolla, CA . . . . . . . . . . . . . La Quinta, CA . . . . . . . . . . . . Lake St Louis, MO . . . . . . . . Lakeway, TX . . . . . . . . . . . . . Lakewood, CA . . . . . . . . . . . Lakewood, WA . . . . . . . . . . . Las Vegas, NV . . . . . . . . . . . Las Vegas, NV . . . . . . . . . . . Las Vegas, NV . . . . . . . . . . . Las Vegas, NV . . . . . . . . . . . Lenexa, KS . . . . . . . . . . . . . . Lenexa, KS . . . . . . . . . . . . . . Lincoln, NE . . . . . . . . . . . . . . London, UKI . . . . . . . . . . . . . London, UKI . . . . . . . . . . . . . London, UKI . . . . . . . . . . . . . Los Alamitos, CA . . . . . . . . . Los Gatos, CA . . . . . . . . . . . . Loxahatchee, FL . . . . . . . . . . Loxahatchee, FL . . . . . . . . . . Loxahatchee, FL . . . . . . . . . . Marietta, GA . . . . . . . . . . . . . Marinette, WI . . . . . . . . . . . . Melbourne, FL . . . . . . . . . . . Menasha, WI . . . . . . . . . . . . . Merced, CA . . . . . . . . . . . . . . Merriam, KS . . . . . . . . . . . . . Merriam, KS . . . . . . . . . . . . . Merriam, KS . . . . . . . . . . . . . Merriam, KS . . . . . . . . . . . . . Merriam, KS . . . . . . . . . . . . . Merrillville, IN . . . . . . . . . . . Mesa, AZ . . . . . . . . . . . . . . . . Mesquite, TX . . . . . . . . . . . . Milwaukee, WI . . . . . . . . . . . Milwaukee, WI . . . . . . . . . . . Milwaukee, WI . . . . . . . . . . . Milwaukee, WI . . . . . . . . . . . Mission Hills, CA . . . . . . . . . Missouri City, TX . . . . . . . . . — — — — — — — — — — — — — — — — — — — — — — — — — 5,455 — — — — — — — — — — — 3,658 8,062 2,016 15,896 24,796 — 3,688 13,313 91 3,688 13,405 2,374 2012 2007 10701 Vintage Preserve — 2,587 — 607 2,252 2,825 — 760 2,569 12,855 9,425 3,266 240 — 146 72 — 2,319 74 433 540 100 1,420 17,395 3,948 5,058 39 488 1,637 1,340 1,553 2,682 — 3,439 1,374 — 176 — — — 1,226 — 1,558 496 540 1,425 922 — — — — 13,720 9,941 17,367 11,415 5,858 18,058 22,878 14,384 32,229 26,571 22,066 14,249 — 14,885 16,017 — 4,612 15,287 6,921 17,926 13,723 29,723 152,642 27,188 11,174 18,635 22,386 5,048 6,509 4,694 20,053 13,538 50,461 13,861 14,585 8,005 1,996 10,222 5,862 24,998 22,134 9,561 3,834 8,457 11,520 2,185 44,535 42,276 — 12,815 2,587 — 668 2,608 3,005 — 760 2,569 12,855 9,425 3,279 240 2,801 146 72 6,127 2,319 74 433 540 100 1,420 17,395 3,948 5,058 39 488 1,719 1,440 1,650 2,682 — 3,439 1,374 — 176 81 358 182 1,257 — 1,558 496 540 1,425 922 — 4,791 1,360 68,072 14,116 9,941 17,389 13,962 6,562 18,058 22,954 14,756 32,229 26,571 22,234 14,355 — 16,842 16,675 — 5,632 16,546 7,133 18,228 13,723 29,876 152,642 27,188 11,174 19,722 24,147 5,990 7,170 5,719 20,053 13,538 50,779 16,980 14,585 8,138 4,081 14,146 8,811 25,029 22,823 10,214 3,834 8,457 11,520 2,185 44,535 39,565 7,523 80,886 396 — 83 2,903 884 — 76 372 — — 180 106 2,801 1,957 658 6,127 1,021 1,259 212 302 — 153 — — — 1,087 1,761 1,024 761 1,121 — — 318 3,119 — 133 2,166 4,283 3,132 62 689 653 — — — — — 2,080 8,883 147 9,242 3,403 539 2,917 4,344 2,579 4,086 6,000 1,676 2,871 1,665 2,727 3,919 — 5,315 2,561 — 2,254 5,430 2,763 3,995 969 8,758 7,015 1,250 514 6,191 9,201 2,272 2,582 2,083 — 3,685 5,089 650 3,858 2,592 1,347 4,293 2,655 3,699 5,749 3,928 699 2,069 3,676 871 9,857 4,793 63 Parkway 1998 2727 W Holcombe Boulevard 2006 5655 Hudson Drive 2014 8233 N. Sam Houston Parkway E. 2009 1201 E Michigan Avenue 2001 550 Heritage Dr. 2004 600 Heritage Dr. 1993 10400 75th St. 2010 2405 Clear Creek Rd 2011 135 Bunton Road 1989 4150 Regents Park Row 1988 4120 & 4130 La Jolla Village Drive 2006 47647 Caleo Bay Drive 2008 400 Medical Dr 1900 Lohmans Crossing Road 1993 5750 Downey Ave. 2005 11307 Bridgeport Way SW 1900 SW corner of Deer Springs Way and Riley Street 1991 2870 S. Maryland Pkwy. 2000 1815 E. Lake Mead Blvd. 1997 1776 E. Warm Springs Rd. 2008 23401 Prairie Star Pkwy 2013 23351 Prairie Star Parkway 2003 575 South 70th St 2010 53 Parkside 2003 49 Parkside 2007 17-19 View Road 2003 3771 Katella Ave. 1993 555 Knowles Dr. 1997 12977 Southern Blvd. 1993 12989 Southern Blvd. 1994 12983 Southern Blvd. 2016 4800 Olde Towne Parkway 2002 4061 Old Peshtigo Rd. 2009 2222 South Harbor City Boulevard 1994 1550 Midway Place 2010 315 Mercy Ave. 1972 8800 West 75th Street 1980 7301 Frontage Street 1977 8901 West 74th Street 1985 9119 West 74th Street 2009 9301 West 74th Street 2006 101 E. 87th Ave. 1989 6424 East Broadway Road 2012 1575 I-30 1930 1218 W. Kilbourn Ave. 1962 3301-3355 W. Forest Home Ave. 1958 840 N. 12th St. 1983 2801 W. Kinnickinnic Pkwy. 1986 11550 Indian Hills Road 2016 7010 Highway 6 2012 2012 2013 2013 2006 2007 2010 2010 2014 2015 2015 2014 2010 2007 2006 2012 2007 2006 2006 2007 2010 2013 2010 2015 2015 2015 2007 2006 2006 2006 2006 2016 2010 2014 2016 2009 2011 2011 2011 2011 2013 2008 2008 2012 2010 2010 2010 2010 2014 2015 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Moline, IL . . . . . . . . . . . . . . . Monticello, MN . . . . . . . . . . . Moorestown, NJ . . . . . . . . . . Mount Juliet, TN . . . . . . . . . . Mount Vernon, IL . . . . . . . . . Murrieta, CA . . . . . . . . . . . . . Murrieta, CA . . . . . . . . . . . . . Muskego, WI . . . . . . . . . . . . . Nashville, TN . . . . . . . . . . . . New Albany, IN . . . . . . . . . . — 8,021 — 2,479 — — — 970 — — New Berlin, WI . . . . . . . . . . . 3,738 Niagara Falls, NY . . . . . . . . . Niagara Falls, NY . . . . . . . . . Oklahoma City, OK . . . . . . . Oro Valley, AZ . . . . . . . . . . . Oshkosh, WI . . . . . . . . . . . . . — — — — — Oshkosh, WI . . . . . . . . . . . . . 6,749 Palmer, AK . . . . . . . . . . . . . . Pasadena, TX . . . . . . . . . . . . Pearland, TX . . . . . . . . . . . . . Pearland, TX . . . . . . . . . . . . . Pendleton, OR . . . . . . . . . . . . Phoenix, AZ . . . . . . . . . . . . . Pineville, NC . . . . . . . . . . . . . Plano, TX . . . . . . . . . . . . . . . — — — — — — — — Plano, TX . . . . . . . . . . . . . . . 51,686 Plantation, FL . . . . . . . . . . . . Plantation, FL . . . . . . . . . . . . — — Plymouth, WI . . . . . . . . . . . . 1,131 Portland, ME . . . . . . . . . . . . . Redmond, WA . . . . . . . . . . . Reno, NV . . . . . . . . . . . . . . . Richmond, TX . . . . . . . . . . . . Richmond, VA . . . . . . . . . . . Rockwall, TX . . . . . . . . . . . . Rogers, AR . . . . . . . . . . . . . . Rolla, MO . . . . . . . . . . . . . . . Roswell, NM . . . . . . . . . . . . . Roswell, NM . . . . . . . . . . . . . Roswell, NM . . . . . . . . . . . . . Sacramento, CA . . . . . . . . . . Salem, NH . . . . . . . . . . . . . . . San Antonio, TX . . . . . . . . . . San Antonio, TX . . . . . . . . . . San Antonio, TX . . . . . . . . . . San Antonio, TX . . . . . . . . . . Santa Clarita, CA . . . . . . . . . Santa Clarita, CA . . . . . . . . . Santa Clarita, CA . . . . . . . . . — — — — — — — — — — — — — — — — — — — — Santa Clarita, CA . . . . . . . . . 25,000 Santa Clarita, CA . . . . . . . . . Sarasota, FL . . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . . . Sewell, NJ . . . . . . . . . . . . . . . — — — — — 61 6 1,566 — 3,800 — 964 1,806 2,411 3,739 1,433 454 216 89 — — 217 1,700 1,500 9,594 — 1,149 961 5,423 793 8,563 8,848 1,250 655 5,015 1,117 — 2,969 132 1,062 1,931 183 883 762 866 1,655 1,012 1,038 4,518 900 — — 278 295 — 62 4,410 60 8,783 18,489 50,896 11,697 24,892 — 47,190 2,159 7,165 16,494 8,290 10,891 8,362 19,135 18,339 18,339 15,881 29,705 8,009 11,253 32,753 10,312 48,018 6,974 20,698 83,209 10,666 9,262 1,870 25,930 26,709 21,972 — 26,697 17,197 29,277 47,639 5,851 15,984 17,171 12,756 14,050 10,178 9,173 31,041 17,288 2,338 28,384 185 40,257 20,618 47,325 38,428 57,929 Shakopee, MN . . . . . . . . . . . . 6,132 508 11,412 29 48 6 1,173 — — 46 — 3,120 30 — 448 322 280 856 — — 1,362 — — 191 6 11,308 2,463 57 989 3,475 640 — 13 284 2,070 11,118 60 522 — — — 30 1 1,834 20 — 1,777 2,610 473 19,914 1,926 11,595 — 375 1,964 392 294 275 — 61 6 1,566 — 3,800 — 964 1,806 2,411 3,739 1,731 454 216 89 — — 217 1,700 1,500 9,807 — 1,149 1,077 5,423 793 8,575 8,908 1,250 655 5,015 1,117 2,000 3,004 132 1,062 1,931 183 883 762 869 1,655 1,012 1,038 4,548 900 5,196 5,250 11,872 295 4,407 62 4,410 74 8,812 18,537 50,902 12,870 24,892 — 47,236 2,159 10,285 16,524 8,290 11,042 8,683 19,415 19,195 18,339 15,881 31,067 8,009 11,253 32,731 10,318 59,327 9,321 20,755 84,198 14,130 9,842 1,870 25,943 26,993 24,042 9,118 26,722 17,719 29,277 47,639 5,851 16,014 17,171 14,587 14,070 10,178 10,950 33,621 17,761 17,056 25,060 185 40,257 16,586 49,290 38,820 58,209 715 2,651 8,377 4,749 4,238 — 13,323 488 3,787 1,656 2,035 4,807 2,662 3,515 6,000 4,117 3,528 9,424 702 894 2,569 812 20,711 3,747 10,292 16,056 6,384 6,207 515 6,128 6,187 7,907 171 5,926 3,516 7,493 9,312 1,368 3,346 2,916 5,092 1,716 4,177 4,777 7,824 2,700 1,932 2,736 95 2,745 1,957 9,088 11,598 18,809 2012 2012 2011 2007 2011 2014 2010 2010 2006 2014 2010 2007 2007 2013 2007 2010 2010 2007 2012 2012 2014 2012 2006 2006 2008 2012 2006 2006 2010 2011 2010 2006 2015 2012 2012 2011 2011 2011 2011 2011 2006 2014 2006 2006 2012 2014 2014 2014 2014 2014 2014 2012 2010 2007 2013 3900 28th Avenue Drive 2008 1001 Hart Boulevard 2012 401 Young Avenue 2005 5002 Crossings Circle 2012 4121 Veterans Memorial Dr 1900 28078 Baxter Rd. 2011 28078 Baxter Rd. 1993 S74 W16775 Janesville Rd. 1986 310 25th Ave. N. 2001 2210 Green Valley Road 1993 14555 W. National Ave. 1995 6932 - 6934 Williams Rd 2004 6930 Williams Rd 2008 535 NW 9th Street 2004 1521 E. Tangerine Rd. 2000 855 North Wethaven Dr. 2000 855 North Wethaven Dr. 2006 2490 South Woodworth Loop 2013 5001 E Sam Houston Parkway S 2013 2515 Business Center Drive 2013 11511 Shadow Creek Parkway 2013 3001 St. Anthony Drive 1998 2222 E. Highland Ave. 1988 10512 Park Rd. 2007 6957 Plano Parkway 2005 6020 West Parker Road 1997 851-865 SW 78th Ave. 1996 600 Pine Island Rd. 1991 2636 Eastern Ave. 2008 195 Fore River Parkway 2011 18000 NE Union Hill Rd. 1991 343 Elm St. 2016 22121 FM 1093 Road 2008 7001 Forest Avenue 2008 3142 Horizon Road 2008 2708 Rife Medical Lane 2009 1605 Martin Spring Drive 2004 601 West Country Club Road 2006 350 West Country Club Road 2009 300 West Country Club Road 1990 8120 Timberlake Way 2013 31 Stiles Road 1999 19016 Stone Oak Pkwy. 1999 540 Stone Oak Centre Drive 1986 5282 Medical Drive 2007 3903 Wiseman Boulevard 1976 23861 McBean Parkway 1998 23929 McBean Parkway 1996 23871 McBean Parkway 2013 23803 McBean Parkway 1989 24355 Lyons Avenue 1990 1921 Waldemere Street 2010 5350 Tallman Ave 2009 239 Hurffville-Cross Keys Road 509 11,687 3,201 2010 1996 1515 St Francis Ave 148 Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address 773 1,012 — 3,121 3,400 3,000 592 18,089 2,216 21,135 31,488 22,246 — 18,581 3,781 616 1,057 3,439 4,681 — 3,616 2010 2010 2013 2014 2008 2014 2012 2007 1601 St Francis Ave 1958 1813 Ashland Ave. 2014 106 Vision Park Boulevard 1969 4955 Van Nuys Boulevard 2007 30 Rehill Avenue 1900 Central Avenue 2004 1545 East Southlake Boulevard 698 34,389 5,370 2012 2004 1545 East Southlake Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Shakopee, MN . . . . . . . . . . . . Sheboygan, WI . . . . . . . . . . . Shenandoah, TX . . . . . . . . . . Sherman Oaks, CA . . . . . . . . Somerville, NJ . . . . . . . . . . . . Southlake, TX . . . . . . . . . . . . Southlake, TX . . . . . . . . . . . . 10,363 1,563 — — — — — 707 1,012 — — 3,400 3,000 592 18,089 2,216 21,135 32,186 22,244 — 18,243 Southlake, TX . . . . . . . . . . . . 17,534 698 30,549 Springfield, IL . . . . . . . . . . . . Springfield, IL . . . . . . . . . . . . St Paul, MN . . . . . . . . . . . . . . St. Louis, MO . . . . . . . . . . . . St. Paul, MN . . . . . . . . . . . . . Stamford, CT . . . . . . . . . . . . . Suffern, NY . . . . . . . . . . . . . . Suffolk, VA . . . . . . . . . . . . . . — — — — — — — — Sugar Land, TX . . . . . . . . . . . 8,076 Summit, WI . . . . . . . . . . . . . . Tacoma, WA . . . . . . . . . . . . . Tallahassee, FL . . . . . . . . . . . Tampa, FL . . . . . . . . . . . . . . . Temple, TX . . . . . . . . . . . . . . Tucson, AZ . . . . . . . . . . . . . . Tustin, CA . . . . . . . . . . . . . . . Tustin, CA . . . . . . . . . . . . . . . Van Nuys, CA . . . . . . . . . . . . Voorhees, NJ . . . . . . . . . . . . . Voorhees, NJ . . . . . . . . . . . . . Waxahachie, TX . . . . . . . . . . Wellington, FL . . . . . . . . . . . Wellington, FL . . . . . . . . . . . — — — — — — — — — — — — — — West Allis, WI . . . . . . . . . . . . 2,869 West Seneca, NY . . . . . . . . . Zephyrhills, FL . . . . . . . . . . . — — Outpatient medical — — 49 336 2,706 — 653 1,566 3,543 2,899 — — 4,319 2,900 1,302 3,345 3,361 — 6,404 6 — 107 388 1,104 917 3,875 — — 37,695 17,247 39,507 — 37,255 11,511 15,532 87,416 64,307 17,449 12,234 9,954 4,925 541 12,039 36,187 24,251 96,075 18,784 16,933 13,697 3,303 22,435 27,270 66 — — 2,423 2 — 338 3,840 11,919 3,728 330 1,501 11 41,153 200 25 — — — — — 26 847 — 1,374 — 1,474 77 — 2,639 1,572 — 3,531 — 1,568 177 49 336 2,701 — 696 1,566 3,543 2,899 — — 4,319 2,900 1,325 3,345 3,361 — 6,477 6 — 316 580 1,106 1,665 3,875 10,351 3,551 38,025 18,748 39,523 41,153 37,412 11,537 15,532 87,416 64,307 17,449 12,234 9,980 5,749 541 13,413 36,187 25,651 96,152 18,784 19,364 15,077 3,301 25,218 27,270 459 161 2,691 6,141 9,139 — 8,423 3,829 3,526 26,616 11,469 4,335 2,047 1,122 2,429 193 1,294 7,655 8,389 17,750 40 5,685 4,256 1,100 8,459 4,992 total: . . . . . . . . . . . . . . . . . $404,079 $505,698 $4,548,662 $450,707 $585,521 $4,919,550 $984,766 Assets held for sale: Akron, OH . . . . . . . . . . . . . . . $ — $ Akron, OH . . . . . . . . . . . . . . . Alliance, OH . . . . . . . . . . . . . Aventura, FL . . . . . . . . . . . . . Baltic, OH . . . . . . . . . . . . . . . Bellingham, MA . . . . . . . . . . Boca Raton, FL . . . . . . . . . . . Boonville, IN . . . . . . . . . . . . . Chicago, IL . . . . . . . . . . . . . . Chicago, IL . . . . . . . . . . . . . . Columbus, OH . . . . . . . . . . . Columbus, OH . . . . . . . . . . . Columbus, OH . . . . . . . . . . . Columbus, IN . . . . . . . . . . . . Columbus, OH . . . . . . . . . . . Conyers, GA . . . . . . . . . . . . . Cortland, NY . . . . . . . . . . . . . — — — — — — — — — — — — — — — — 630 290 270 4,540 50 9,270 1,440 190 1,800 2,900 530 1,010 1,010 530 — 2,740 700 $ 7,535 8,219 7,723 33,986 8,709 — 31,048 5,510 19,256 17,016 5,170 5,022 4,931 6,710 — 19,302 18,041 $ — — — — — — — — — — 4,434 — 8,418 — 7,023 — — $ — $ — — — — — — — — — — — — — — — — 6,212 6,260 5,764 35,599 6,339 1,372 30,214 3,492 18,878 17,840 10,134 4,386 14,359 4,703 7,023 20,186 16,935 $ — — — — — — — — — — — — — — — — — 149 Boulevard 2011 1100 East Lincolnshire Blvd 2011 2801 Mathers Rd 2006 225 Smith Avenue N. 2001 2325 Dougherty Rd. 2007 435 Phalen Boulevard 2016 29 Hospital Plaza 2007 255 Lafayette Avenue 2007 5838 Harbour View Blvd. 2005 11555 University Boulevard 2009 36500 Aurora Dr. 2013 1608 South J Street 2011 One Healing Place 2003 14547 Bruce B Downs Blvd 2012 2601 Thornton Lane 1995 2055 W. Hospital Dr. 1976 14591 Newport Ave 1985 14642 Newport Ave 1991 6815 Noble Ave. 1997 900 Centennial Blvd. 2012 200 Bowman Drive 2014 2460 N I-35 East 2000 10115 Forest Hill Blvd. 2003 1395 State Rd. 7 1961 11333 W. National Ave. 1990 550 Orchard Park Rd 1974 38135 Market Square Dr 1915 209 Merriman Road 1961 721 Hickory St. 1982 1785 Freshley Ave. 2001 2777 NE 183rd Street 1983 130 Buena Vista St. 1900 Maple Street and High Street 1989 1080 Northwest 15th Street 2000 1325 N. Rockport Rd. 2005 6700 South Keating Avenue 2007 4239 North Oak Park Avenue 1968 1425 Yorkland Rd. 1983 1850 Crown Park Ct. 1978 5700 Karl Rd. 2001 2011 Chapa Dr. 1994 750 Mt. Carmel Mall 1998 1504 Renaissance Drive 2001 839 Bennie Road 2010 2010 2014 2007 2011 2015 2011 2010 2012 2008 2011 2010 2011 2011 2008 2015 2015 2009 2006 2010 2016 2006 2007 2010 2007 2011 2006 2005 2006 2012 2006 2007 2012 2002 2012 2012 2005 2006 2006 2002 2012 2012 2012 Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address El Paso, TX . . . . . . . . . . . . Fayetteville, GA . . . . . . . . . Fredericksburg, VA . . . . . . Germantown, TN . . . . . . . . Greendale, WI . . . . . . . . . . Hanover, IN . . . . . . . . . . . . Hattiesburg, MS . . . . . . . . . Hemet, CA . . . . . . . . . . . . . Hemet, CA . . . . . . . . . . . . . Hermitage, TN . . . . . . . . . . Hollywood, FL . . . . . . . . . . Houston, TX . . . . . . . . . . . . Huron, OH . . . . . . . . . . . . . Jackson, NJ . . . . . . . . . . . . . Jacksonville Beach, FL . . . Jefferson, OH . . . . . . . . . . . Jupiter, FL . . . . . . . . . . . . . Kennesaw, GA . . . . . . . . . . Kennewick, WA . . . . . . . . . Lake Barrington, IL . . . . . . Lancaster, NH . . . . . . . . . . Lexington, KY . . . . . . . . . . Loganville, GA . . . . . . . . . . Marietta, GA . . . . . . . . . . . Monclova, OH . . . . . . . . . . Monroe, WA . . . . . . . . . . . Morrow, GA . . . . . . . . . . . . Naples, FL . . . . . . . . . . . . . Olympia, WA . . . . . . . . . . . Orange Village, OH . . . . . . Palm Springs, FL . . . . . . . . Palm Springs, FL . . . . . . . . Panama City Beach, FL . . . — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Plano, TX . . . . . . . . . . . . . . 4,032 San Ramon, CA . . . . . . . . . Sarasota, FL . . . . . . . . . . . . Sarasota, FL . . . . . . . . . . . . Sarasota, FL . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . Seattle, WA . . . . . . . . . . . . St. Louis, MO . . . . . . . . . . . Stanwood, WA . . . . . . . . . . Thomasville, GA . . . . . . . . Uhrichsville, OH . . . . . . . . Victoria, BC . . . . . . . . . . . . Webster, NY . . . . . . . . . . . . Webster, NY . . . . . . . . . . . . Webster Groves, MO . . . . . West Chester, PA . . . . . . . . West Chester, PA . . . . . . . . West Worthington, OH . . . — — — — — — — — — — — — — — — — — 1,420 560 3,700 3,049 2,060 210 — 1,890 430 — 1,240 5,090 160 6,500 1,210 80 3,100 940 1,820 3,400 160 1,980 1,430 1,270 1,750 2,560 818 1,716 550 610 739 1,182 — 840 2,430 950 1,120 880 3,420 2,630 — 2,260 — 24 2,674 800 1,300 1,790 3,290 600 510 12,394 12,665 22,016 12,456 35,383 4,430 — 28,606 9,630 — 13,806 9,471 6,088 26,405 26,207 9,120 47,453 10,848 27,991 66,179 434 21,258 22,912 10,519 11,868 34,460 8,064 17,306 16,689 7,419 4,066 7,765 — 8,538 17,488 8,825 12,489 9,854 15,555 10,257 — 28,474 — 6,716 14,218 8,968 21,127 15,425 42,258 11,894 5,090 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 13,347 12,165 23,684 12,202 33,762 3,025 11,863 22,635 8,993 10,121 14,106 8,503 5,566 32,201 25,088 6,402 46,458 10,943 23,390 63,190 493 21,928 22,257 11,054 12,230 29,936 5,913 4,055 13,830 6,096 2,061 3,062 6,367 2,499 16,188 9,314 12,360 9,998 15,455 10,996 12,522 24,648 11,378 4,763 13,876 8,847 20,295 15,642 41,176 11,065 4,046 — — — — — — 11,863 — — 10,121 — — — — — — — — — — — — — — — — — — — — — — 6,367 — — — — — — — 12,522 — 11,378 — — — — — — — — 150 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 2014 2012 2012 2006 2012 2004 2010 2010 2010 2011 2012 2007 2005 2012 2012 2006 2012 2012 2010 2012 2011 2014 2012 2012 2011 2010 2007 1997 2010 2007 2006 2006 2011 2011 2010 2012 2012 2012 2010 2010 2010 2010 2011 2006 2012 2012 2012 2011 2012 2012 2006 1999 435 S Mesa Hills Drive 1994 1967 Highway 54 West 1992 12100 Chancellors Village 2002 1325 Wolf Park Drive 1988 5700 Mockingbird Lane 2000 188 Thornton Rd 2009 217 Methodist Hospital Blvd 1989 1001 N. Lyon Ave 1988 1001 N. Lyon Ave 2006 4131 Andrew Jackson Parkway 2001 3880 South Circle Drive 2009 15015 Cypress Woods Medical Drive 1983 1920 Cleveland Rd. W. 2001 2 Kathleen Drive 1999 1700 The Greens Way 1984 222 Beech St. 2002 110 Mangrove Bay Way 1998 5235 Stilesboro Road 1994 2802 W 35th Ave 2000 22320 Classic Court 1905 63 Country Village Road 2013 2531 Old Rosebud Road 1997 690 Tommy Lee Fuller Drive 1997 3039 Sandy Plains Road 2013 6935 Monclova Road 1994 15465 179th Ave. SE 1990 6635 Lake Drive 1999 1710 S.W. Health Pkwy. 1995 616 Lilly Rd. NE 1985 3755 Orange Place 1993 1640 S. Congress Ave. 1997 1630 S. Congress Ave. 2005 6012 Magnolia Beach Road 1996 5521 Village Creek Dr 1989 18888 Bollinger Canyon Rd 1998 3221 Fruitville Road 1999 2290 Cattlemen Road 1990 3749 Sarasota Square Boulevard 2000 2326 California Ave SW 2003 4611 35th Ave SW 1963 6543 Chippewa St 1998 7212 265th St NW 2006 423 Covington Avenue 1977 5166 Spanson Drive S.E. 2002 2638 Ross Lane 2001 100 Kidd Castle Way 2001 200 Kidd Castle Way 2012 45 E Lockwood Avenue 2000 1615 East Boot Road 2002 1615 East Boot Road 1980 111 Lazelle Rd., E. Description Encumbrances Land Building & Improvements Initial Cost to Company Cost Capitalized Subsequent to Acquisition Gross Amount at Which Carried at Close of Period Land Building & Improvements Accumulated Depreciation(1) Year Acquired Year Built Address Whittier, CA . . . . . . . . . . . . Wichita Falls, TX . . . . . . . . Willard, OH . . . . . . . . . . . . Winter Haven, FL . . . . . . . — — — — 4,470 1,070 730 710 22,151 26,167 6,447 10,038 — — — — — — — — 20,590 25,898 6,317 10,364 Assets held for sale total . . . . . . . . . . . . . . . . $ 4,032 $ 112,022 $ 1,044,065 $ 72,126 $ — $ 1,044,859 Summary: 2010 2014 2011 2014 1988 13250 E Philadelphia St 1998 3908 Kell W Boulevard 2012 1050 Neal Zick 1979 650 North Lake Howard Drive — — — — — Triple-net . . . . . . . . . . . . . . $ 594,199 $ 804,007 $ 7,794,067 $ 718,637 $ 853,984 $ 8,462,729 $1,317,149 Seniors housing operating . . . . . . . . . . . . . 2,400,836 1,085,554 11,775,094 Outpatient medical . . . . . . . Construction in progress . . 404,079 58,381 505,698 4,548,662 — 506,091 807,677 450,707 — 1,151,566 12,516,758 1,791,579 585,521 4,919,550 984,766 — 506,091 — Total continuing operating properties . . . Assets held for sale . . . . . . Total investments in real 3,457,495 2,395,259 24,623,914 1,977,021 2,591,071 26,405,128 4,093,494 4,032 112,022 1,044,065 72,126 — 1,044,859 — property owned . . . . . . $3,461,527 $2,507,281 $25,667,979 $2,049,147 $2,591,071 $27,449,987 $4,093,494 (1) Please see Note 2 to our consolidated financial statements for information regarding lives used for depreciation and amortization. (2) Represents real property asset associated with a capital lease. 151 Year Ended December 31, 2016 2015 2014 (in thousands) Reconciliation of real property: Investment in real estate: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . Additions: $29,865,490 $25,491,935 $23,734,733 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumed other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assumed debt 2,145,590 672,008 172,095 63,732 3,364,891 445,625 389,256 1,064,810 2,210,600 380,298 160,897 265,152 Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions: Cost of real estate sold . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification of accumulated depreciation and amortization for assets held for sale . . . . . . . . . . . . . . . Impairment of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,053,425 5,264,582 3,016,947 (2,118,305) (449,932) (916,997) (292,914) (37,207) (41,464) (2,220) (493,616) (397,411) (64,476) — (981,473) (278,272) Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . (2,448,426) (429,431) Balance at end of year(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,041,058 $29,865,490 $25,491,935 Accumulated depreciation: Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . Additions: Depreciation and amortization expenses . . . . . . . . . . . . . . Amortization of above market leases . . . . . . . . . . . . . . . . Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions: Sale of properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification of accumulated depreciation and $ 3,796,297 $ 3,020,908 $ 2,386,658 901,242 7,909 909,151 826,240 11,912 838,152 844,130 7,935 852,065 (221,737) (69,735) (123,582) amortization for assets held for sale . . . . . . . . . . . . . . . (292,914) (41,464) (64,476) Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . (514,651) (97,303) (111,199) 48,436 (188,058) (29,757) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,093,494 $ 3,796,297 $ 3,020,908 (1) The unaudited aggregate cost for tax purposes for real property equals $24,887,189,000 at December 31, 2016. 152 Welltower Inc. Schedule IV — Mortgage Loans on Real Estate December 31, 2016 Location Segment Interest Rate (in thousands) Final Maturity Date Monthly Payment Terms Prior Liens Face Amount of Mortgages Carrying Amount of Mortgages Principal Amount of Loans Subject to Delinquent Principal or Interest First mortgages relating to 1 property located in: California United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Oklahoma Oregon Pennsylvania Texas Florida Outpatient Medical Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net Triple-Net First mortgages relating to multiple properties: Triple-Net 3 properties in two states Triple-Net 13 properties in Texas Triple-Net 11 properties in six states Triple-Net 18 properties in six states Second mortgages relating to 1 property located in: 6.35% 7.25% 7.00% 8.55% 8.00% 8.04% 7.00% 8.72% 7.10% 7.10% 8.00% 8.11% 12/22/17 11/21/18 12/31/19 07/01/19 07/06/19 01/16/18 02/28/21 11/01/19 05/01/17 06/01/17 02/28/21 06/23/21 $ 348,542 105,443 133,193 64,706 48,485 8,409 107,010 85,043 1,357 1,479 53,507 13,955 $ — — — — — — — — — — — — 10.00% 10.00% 10.00% 10.00% 01/01/22 01/01/22 01/01/22 01/01/22 $ 76,331 878,820 558,025 1,175,775 $ — — — — $ 65,000 17,149 28,047 14,122 18,506 2,591 26,074 11,610 225 250 7,875 17,100 $ 9,000 103,620 65,796 138,634 $ 60,500 17,149 22,273 9,022 7,202 1,233 17,680 11,486 225 250 7,875 2,029 $ 9,000 103,620 65,796 138,634 Connecticut Texas Texas Totals Triple-Net Triple-Net Triple-Net 8.11% 12.17% 10.00% 04/01/18 05/01/19 12/30/18 $ 43,225 32,033 20,247 $16,709 11,751 11,186 $ 6,270 3,100 25,000 $ 6,270 3,100 2,391 $39,646 $559,969 $485,735 $63,553 — — — — — — — — — — — $ — — — — $ — — — $63,553 Reconciliation of mortgage loans: Balance at beginning of year Additions: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2016 2015 2014 $ 635,492 (in thousands) $ 188,651 $146,987 New mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Draws on existing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,223 92,815 524,088 30,550 113,996 26,330 Total additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductions: Collections of principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conversions to real property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in balance due to foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . 101,038 554,638 140,326 (191,134) (45,044) (3,053) (239,231) (11,564) (80,552) (23,288) — (103,840) (3,957) (49,974) (45,836) — (95,810) (2,852) Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 485,735 $ 635,492 $188,651 153 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Thomas J. DeRosa, certify that: 1. I have reviewed this annual report on Form 10-K of Welltower Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 22, 2017 /s/ THOMAS J. DEROSA Thomas J. DeRosa, Chief Executive Officer EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Scott A. Estes, certify that: 1. I have reviewed this annual report on Form 10-K of Welltower Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: February 22, 2017 /s/ SCOTT A. ESTES Scott A. Estes, Chief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, Thomas J. DeRosa, the Chief Executive Officer of Welltower Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Annual Report on Form 10-K for the Company for the year ended December 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ THOMAS J. DEROSA Thomas J. DeRosa, Chief Executive Officer Date: February 22, 2017 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 I, Scott A. Estes, the Chief Financial Officer of Welltower Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), that (i) the Annual Report on Form 10-K for the Company for the year ended December 31, 2016 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ SCOTT A. ESTES Scott A. Estes, Chief Financial Officer Date: February 22, 2017 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. BOARD OF DIRECTORS Kenneth J. Bacon Age 62 Co-Founder and Managing Partner RailField Realty Partners Bethesda, Maryland Thomas J. DeRosa Age 59 Chief Executive Officer Welltower Inc. Toledo, Ohio Jeffrey H. Donahue Age 70 Chairman Former President & Chief Executive Officer Enterprise Community Investment, Inc. Columbia, Maryland Fred S. Klipsch Age 75 Founder and Chairman Hoosiers for Quality Education Indianapolis, Indiana Geoffrey G. Meyers Age 72 Retired Chief Financial Officer, Executive Vice President and Treasurer HCR ManorCare, Inc. Toledo, Ohio Timothy J. Naughton Age 55 Chairman and Chief Executive Officer AvalonBay Communities, Inc. Arlington, Virginia Sharon M. Oster Age 68 Frederic D. Wolfe Professor of Management & Entrepreneurship, Professor of Economics Yale University School of Management New Haven, Connecticut Judith C. Pelham Age 71 President Emeritus Trinity Health Livonia, Michigan Sergio D. Rivera Age 54 CEO and President of the Vacation Ownership Segment ILG, Inc. Miami, Florida R. Scott Trumbull Age 68 Retired CEO and Chairman of the Board Franklin Electric Co., Inc. Fort Wayne, Indiana COMMITTEES OF THE BOARD Audit Committee Klipsch, Meyers, Rivera, Trumbull (Chair) Compensation Committee Bacon, Naughton, Oster (Chair), Pelham Nominating/Corporate Governance Committee Donahue (Chair), Klipsch, Meyers, Oster, Pelham Executive Committee DeRosa, Donahue (Chair), Oster, Trumbull EXECUTIVE OFFICERS Thomas J. DeRosa Chief Executive Officer Scott A. Estes Executive Vice President - Chief Financial Officer Mercedes T. Kerr Executive Vice President - Business & Relationship Management Matthew McQueen Senior Vice President – General Counsel & Corporate Secretary TRANSFER AGENT, REGISTRAR, DIVIDEND DISBURSING AGENT AND PLAN ADMINISTRATOR Computershare P.O. Box 30170 College Station, Texas 77842-3170 (888) 216-7206 www.computershare.com/investor SHAREHOLDER SERVICES Computershare provides shareholder services to registered shareholders via telephone and online. Computershare representatives can assist you in change of name or address, consolidation of accounts, duplicate mailings, dividend reinvestment enrollment, lost share certificates, transfer of shares to another person and additional administrative services. For more information, go to www.computershare.com/ investor or call toll-free (888) 216-7206. INVESTOR INFORMATION Current and prospective investors can access the Annual Report, Proxy Statement, SEC filings, earnings announcements and other press releases on our website at www.welltower.com, or by email request to info@welltower.com. Shankh Mitra Senior Vice President - Finance & Investments EXCHANGE LISTING New York Stock Exchange Trading Symbol: HCN CORPORATE OFFICES Welltower Inc. 4500 Dorr Street Toledo, Ohio 43615-4040 (877) 670-0070 (419) 247-2800 (419) 247-2826 Fax www.welltower.com 466 employees as of 1/31/17 5,066 registered shareholders as of 1/31/17 MEMBER National Association of Real Estate Investment Trusts INDUSTRY PARTNER World Economic Forum FORWARD-LOOKING STATEMENTS This Annual Report and the Letter to Shareholders contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. For example, when we use words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate,” or similar expressions that do not relate solely to historical matters, we are making forward- looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the company’s actual results to differ from the company’s expectations discussed in the forward-looking statements. Important factors that could cause our actual results to be materially different from the forward-looking statements are discussed in our Form 10-K under the heading “Risk Factors.” We assume no obligation to update or revise any forward- looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward- looking statements. LEGAL COUNSEL Shumaker, Loop & Kendrick, LLP Toledo, Ohio INDEPENDENT AUDITORS Ernst & Young LLP Toledo, Ohio WELLTOWER ONLINE Our website: www.welltower.com www.twitter.com/welltower www.linkedin.com/company/welltower To view the Welltower 2016 Year in Review, visit www.welltower.com. www.welltower.com 4500 Dorr Street Toledo, Ohio 43615-4040 877.670.0070 419.247.2800 © COPYRIGHT 2017 WELLTOWER INC. 

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