Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All references in this report to “Healthpeak,” the “Company,” “we,” “us” or “our” mean Healthpeak Properties, Inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Healthpeak Properties, Inc.” mean the parent company without its subsidiaries.

Cautionary Language Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not historical factual statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to risks and uncertainties that could cause actual results, including our future financial condition and results of operations, to differ materially from those expressed or implied by any forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance.

Forward-looking statements are based on certain assumptions and analysis made in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate under the circumstances. While forward-looking statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can give no assurance that our expectations or forecasts will be attained. Further, we cannot guarantee the accuracy of any such forward-looking statement contained in this Quarterly Report.

As more fully set forth under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, risks and uncertainties that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include, among other things:

the coronavirus (“COVID-19”) pandemic and health and safety measures intended to reduce its spread, the availability, effectiveness and public usage and acceptance of vaccines, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate;
operational risks associated with third party management contracts, including the additional regulation and liabilities of our properties operated through structures permitted by the Housing and Economic Recovery Act of 2008, which includes most of the provisions previously proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”);
the ability of our existing and future tenants, operators and borrowers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and manage their expenses in order to generate sufficient income to make rent and loan payments to us and our ability to recover investments made, if applicable, in their operations;
increased competition, operating costs and market changes affecting our tenants, operators and borrowers;
the financial condition of our tenants, operators and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings;
our concentration of investments in the healthcare property sector, which makes us more vulnerable to a downturn in a specific sector than if we invested in multiple industries;
our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;
our property development and redevelopment activity risks, including costs above original estimates, project delays and lower occupancy rates and rents than expected;
changes within the life science industry;
high levels of regulation, funding requirements, expense and uncertainty faced by our life science tenants;
the ability of the hospitals on whose campuses our medical office buildings (“MOBs”) are located and their affiliated healthcare systems to remain competitive or financially viable;
our ability to maintain or expand our hospital and health system client relationships;
economic and other conditions that negatively affect geographic areas from which we recognize a greater percentage of our revenue;
uninsured or underinsured losses, which could result in significant losses and/or performance declines by us or our tenants and operators;
our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority and our reliance on our partners’ financial condition and continued cooperation;
our use of contingent rent provisions and/or rent escalators based on the Consumer Price Index;
competition for suitable healthcare properties to grow our investment portfolio;
our ability to make material acquisitions and successfully integrate them;
the potential impact on us and our tenants, operators and borrowers from litigation matters, including rising liability and insurance costs;
our ability to foreclose on collateral securing our real estate-related loans;
laws or regulations prohibiting eviction of our tenants;
the failure of our tenants and operators to comply with federal, state and local laws and regulations, including resident health and safety requirements, as well as licensure, certification and inspection requirements;
required regulatory approvals to transfer our healthcare properties;
compliance with the Americans with Disabilities Act and fire, safety and other health regulations;
the requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid;
legislation to address federal government operations and administration decisions affecting the Centers for Medicare and Medicaid Services;
our participation in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Provider Relief Program and other COVID-19 related stimulus and relief programs;
volatility or uncertainty in the capital markets, the availability and cost of capital as impacted by interest rates, changes in our credit ratings and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or consummate transactions, or reduce the earnings from potential transactions;
cash available for distribution to stockholders and our ability to make dividend distributions at expected levels;
our ability to manage our indebtedness level and covenants in and changes to the terms of such indebtedness;
changes in global, national and local economic and other conditions;
provisions of Maryland law and our charter that could prevent a transaction that may otherwise be in the interest of our stockholders;
environmental compliance costs and liabilities associated with our real estate investments;
our ability to maintain our qualification as a real estate investment trust (“REIT”);
changes to U.S. federal income tax laws, and potential deferred and contingent tax liabilities from corporate acquisitions;
calculating non-REIT tax earnings and profits distributions;
ownership limits in our charter that restrict ownership in our stock;
our reliance on information technology systems and the potential impact of system failures, disruptions or breaches;
unfavorable litigation resolution or disputes; and
the loss or limited availability of our key personnel.

Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.

Overview

The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. We will discuss and provide our analysis in the following order:

Executive Summary
COVID-19 Update
2021 Transaction Overview
Dividends
Results of Operations
Liquidity and Capital Resources
Contractual Obligations and Off-Balance Sheet Arrangements
Non-GAAP Financial Measures Reconciliations
Critical Accounting Policies and Recent Accounting Pronouncements

Executive Summary

Healthpeak Properties, Inc. is a Standard & Poor’s (“S&P”) 500 company that acquires, develops, owns, leases and manages healthcare real estate across the United States (“U.S.”). Our company was originally founded in 1985. We are a Maryland corporation and qualify as a self-administered REIT. In November 2020, we moved our corporate headquarters from Irvine, California to Denver, Colorado. With properties in nearly every state, the new headquarters provides a favorable mix of affordability and a centralized geographic location. We also operate offices in Irvine, California and Franklin, Tennessee.

During 2020, we began the process of disposing of our senior housing triple-net portfolio and senior housing operating (“SHOP”) portfolio. In September 2021, we successfully completed the disposition of both portfolios. Refer to a discussion of recent dispositions in “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—2021 Transaction Overview”. As of December 31, 2020, we concluded that the planned dispositions represented a strategic shift that has had and will have a major effect on our operations and financial results and, therefore, the assets are classified as discontinued operations in all periods presented herein. Prior periods have been recast to conform to the current period presentation. See Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.

In conjunction with the disposal of our senior housing triple-net and SHOP portfolios, we focused our strategy on investing in a diversified portfolio of high-quality healthcare properties across our three core asset classes of life science, medical office, and continuing care retirement community (“CCRC”) real estate. Under the life science and medical office segments, we invest through the acquisition, development and management of life science buildings, MOBs, and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of debt investments and an interest in an unconsolidated joint venture that owns 19 senior housing assets.

At September 30, 2021, our portfolio of investments, including properties in our unconsolidated joint ventures and excluding investments classified as discontinued operations, consisted of interests in 480 properties. The following table summarizes information for our reportable segments, excluding discontinued operations, for the three months ended September 30, 2021 (dollars in thousands):


Segment	Total Portfolio Adjusted NOI(1)(2)		Percentage of Total Portfolio Adjusted NOI(1)		Number of Properties
Life science	$	129,270	50	%	146
Medical office	103,563		40	%	300
CCRC	20,930		8	%	15
Other non-reportable	3,572		2	%	19
Totals	$	257,335	100	%	480

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(1)Total Portfolio metrics include results of operations from disposed properties through the disposition date. See “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information regarding Adjusted NOI and see Note 14 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

(2)For the three months ended September 30, 2021, Adjusted NOI for our senior housing triple-net and SHOP portfolios was $1 million and $(3) million, respectively. Operating results for these portfolios are reported as discontinued operations for all periods presented herein.

For a description of our significant activities during 2021, see “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—2021 Transaction Overview” in this report.

We invest in and manage our real estate portfolio for the long-term to maximize benefit to our stockholders and support the growth of our dividends. Our strategy consists of four core elements:

(i)Our real estate: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected private pay asset classes, life science, medical office, and continuing care retirement community, to provide stability through inevitable market cycles.

(ii)Our financials: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt financing with staggered maturities to reduce our exposure to interest rate volatility and refinancing risk.

(iii)Our partnerships: We work with leading healthcare companies, operators and service providers and are responsive to their space and capital needs. We provide high-quality management services to encourage tenants to renew, expand and relocate into our properties, which drives increased occupancy, rental rates, and property values.

(iv)Our platform: We have a people-first culture that we believe attracts, develops and retains top talent. We continually strive to create and maintain an industry-leading platform, with systems and tools that allow us to effectively and efficiently manage our assets and investment activity.

COVID-19 Update

Our tenants, operators, and borrowers have experienced significant cost increases as a result of increased health and safety measures, staffing shortages, increased governmental regulation and compliance, vaccine mandates, and other operational changes necessitated either directly or indirectly by the COVID-19 pandemic. Labor costs in particular have increased as a result of higher staffing hours, increased hourly wages and bonuses, greater overtime, and increased usage of contract labor. We anticipate that many of these expenses will remain at these higher levels even after the pandemic passes, and may reduce margins in the business.

The impact of COVID-19 on the ability of our tenants to pay rent in the future is currently unknown. We have monitored, and will continue to monitor, the credit quality of each of our tenants and write off straight-line rent and accounts receivable, as necessary. In the event we conclude that substantially all of a tenant’s straight-line rent or accounts receivable is not probable of collection in the future, such amounts will be written off, which could have a material impact on our future results of operations.

All development, redevelopment, and tenant improvement projects that were previously delayed have been allowed to restart with infection control protocols in place, although future local, state, or federal orders could cause work to be suspended, and individual projects may be affected by outbreaks.

We remain well-positioned to navigate economic changes resulting from the pandemic, with approximately $2.1 billion of liquidity available, including $1.65 billion of borrowing capacity under our bank line of credit facility, $319 million of net proceeds expected from the future settlement of shares issued through our ATM forward contracts, and approximately $124 million of cash and cash equivalents as of November 1, 2021.

We have taken, and will continue to take, proactive measures to provide for the well-being of our employees. We have implemented systems and processes that have allowed us to work effectively and efficiently in the remote environment. The steps taken to protect our employees and afford them a safe working environment continue to evolve along with authoritative guidance on best practices.

Although the wide availability of the vaccine has reduced the negative impacts of the pandemic in our CCRC communities and senior housing facilities, we do not yet know the full, long-term economic impact of the COVID-19 pandemic or when occupancy and revenue will return to pre-pandemic levels. The increase in cases caused by recent variants has evidenced the fact that the course of the pandemic is highly uncertain and that unexpected surges or other factors could materially impact recovery from the pandemic, adversely disrupt operations, and/or cause significant reputational harm to us, our tenants, our operators, or our borrowers.

See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for additional discussion of the risks posed by the COVID-19 pandemic and uncertainties we and our tenants, operators, and borrowers may face as a result.

2021 Transaction Overview

South San Francisco Land Site Acquisition

In October 2020, we executed a definitive agreement to acquire approximately 12 acres of land for $128 million. The acquisition site is located in South San Francisco, California, adjacent to two sites currently held by us as land for future development. We paid a $10 million nonrefundable deposit upon completing due diligence in November 2020. The first phase of the acquisition, with a purchase price of $61 million, closed in April 2021. The second phase of the acquisition, with a purchase price of $24 million, closed in September 2021. The final phase of the acquisition, with a purchase price of $43 million, closed in October 2021.

Westview Medical Plaza Acquisition

In February 2021, we acquired one MOB in Nashville, Tennessee for $13 million.

Pinnacle at Ridgegate Acquisition

In April 2021, we acquired one MOB in Denver, Colorado for $38 million.

MOB Portfolio Acquisition

In April 2021, we acquired 14 MOBs for $371 million and originated $142 million of secured mortgage debt (the “MOB Portfolio”).

Westside Medical Plaza Acquisition

In June 2021, we acquired one MOB in Fort Lauderdale, Florida for $16 million.

Wesley Woodlawn Acquisition

In July 2021, we acquired one MOB in Wichita, Kansas for $50 million.

Atlantic Health Acquisition

In July 2021, we acquired three MOBs in Morristown, New Jersey for $155 million.

Baylor Centennial Acquisitions

In September 2021, we acquired two MOBs in Dallas, Texas for $60 million.

Concord Avenue Campus Acquisition

In September 2021, we acquired a life science campus, comprised of three buildings, in Cambridge, Massachusetts for $180 million.

10 Fawcett Acquisition

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $73 million.

Vista Sorrento Phase 1 Acquisition

In October 2021, we closed a life science acquisition in San Diego, California for $20 million.

Swedish Medical Acquisition

In October 2021, we acquired one MOB in Seattle, Washington for $43 million.

Lakeview Medical Pavilion

In October 2021, we acquired one MOB in New Orleans, Louisiana for $34 million.

Mooney Street Parcels

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $123 million.

725 Concord

In October 2021, we acquired an MOB and adjacent land parcel in Cambridge, Massachusetts for $80 million.

25 Spinelli

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $34 million.

68 Moulton

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $18 million.

Senior Housing Portfolio Sales

In January 2021, we sold a portfolio of 32 SHOP assets (the “Sunrise Senior Housing Portfolio”) for $664 million and provided the buyer with: (i) financing of $410 million and (ii) a commitment to finance up to $92 million of additional debt for capital expenditures. In June 2021, we received principal repayments of $246 million on the January 2021 financing. As a result of this repayment, the commitment to finance additional debt for capital expenditures was reduced to $56 million, $0.4 million of which had been funded as of September 30, 2021.
In January 2021, we sold 24 senior housing assets under a triple-net lease with Brookdale Senior Living Inc. (“Brookdale”) for $510 million.
In January 2021, we sold a portfolio of 16 SHOP assets for $230 million and provided the buyer with financing of $150 million.
In February 2021, we sold eight senior housing assets in a triple-net lease with Harbor Retirement Associates for $132 million.
In April 2021, we sold a portfolio of 12 SHOP assets for $564 million.
In April 2021, we sold: (i) a portfolio of 10 SHOP assets for $334 million and (ii) 2 mezzanine loans and 2 preferred equity investments for $21 million.
In April 2021, we sold a portfolio of five SHOP assets for $64 million.
In May 2021, we sold a portfolio of seven SHOP assets for $113 million.
In June 2021, upon completion of the license transfer process, we sold the two remaining Sunrise senior housing triple-net assets for $80 million.
In addition to the transactions above, during the nine months ended September 30, 2021, we sold 15 SHOP assets for $169 million and 7 senior housing triple-net assets for $24 million. Therefore, as of September 30, 2021, we had successfully completed the disposition of our remaining senior housing triple-net and SHOP properties classified as discontinued operations.

Other Real Estate Transactions

In April 2021, the SHOP property in the Otay Ranch JV was sold, resulting in our share of proceeds of $32 million.
In May 2021, the CCRC JV sold the remaining two CCRCs for $38 million, $19 million of which represents our 49% interest.
In addition to the transactions above, during the nine months ended September 30, 2021, we sold seven MOBs for $57 million and one hospital for $226 million (through the exercise of a purchase option by a tenant).

Financing Activities

In January 2021, we repurchased $112 million aggregate principal amount of our 4.25% senior unsecured notes due 2023, $201 million aggregate principal amount of our 4.20% senior unsecured notes due 2024, and $469 million aggregate principal amount of our 3.88% senior unsecured notes due 2024.
In February 2021, we used optional redemption provisions to redeem the remaining $188 million of our 4.25% senior unsecured notes due 2023, $149 million of our 4.20% senior unsecured notes due 2024, and $331 million of our 3.88% senior unsecured notes due 2024.
In May 2021, we repurchased $252 million of our 3.40% senior unsecured notes due 2025 and $298 million of our 4.00% senior unsecured notes due 2025.
In July 2021, we completed our inaugural green bond offering, issuing $450 million aggregate principal amount of 1.35% senior unsecured notes due 2027.
In July 2021, we repaid the $250 million outstanding balance on our unsecured term loan facility (“2019 Term Loan”).
In September 2021, we amended and restated our bank line of credit facility to increase total revolving commitments from $2.5 billion to $3.0 billion and extend the maturity date to January 20, 2026. This maturity date may be further extended pursuant to two six-month extension options, subject to certain customary conditions.
During the three months ended September 30, 2021, we utilized the forward provisions under the 2020 ATM Program (as defined below) to allow for the sale of an aggregate of 9.1 million shares of our common stock at an initial weighted average net price of $35.25 per share, after commissions.
In 2021, we increased the maximum aggregate face or principal amount that can be outstanding at any one time under our commercial paper program from $1.0 billion to $1.5 billion.

Development Activities

At September 30, 2021, we had five on-campus MOB developments in process with an aggregate total estimated cost of $122 million.
At September 30, 2021, we had seven life science development projects in process with an aggregate total estimated cost of approximately $1.2 billion.
During the nine months ended September 30, 2021, the following projects were placed in service: (i) one life science development project with a total project cost of $151 million at completion, (ii) one life science redevelopment project with a total project cost of $19 million at completion, and (iii) two redevelopment assets in an unconsolidated joint venture owning 19 SHOP assets with our aggregate share of total project costs of $23 million at completion.

Dividends

The following table summarizes our common stock cash dividends declared in 2021:


Declaration Date	Record Date	Amount Per Share		Dividend Payment Date
February 9	February 22	$	0.30	March 5
April 29	May 10	0.30		May 21
July 29	August 9	0.30		August 20
October 27	November 8	0.30		November 19

Results of Operations

We evaluate our business and allocate resources among our reportable business segments: (i) life science, (ii) medical office, and (iii) CCRC. Under the life science and medical office segments, we invest through the acquisition and development of life science facilities, MOBs, and hospitals, which generally require a greater level of property management. Our CCRCs are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of: (i) an interest in an unconsolidated joint venture that owns 19 senior housing assets and (ii) debt investments. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission (“SEC”), as updated by Note 2 to the Consolidated Financial Statements herein.

In conjunction with classifying our senior housing triple-net and SHOP portfolios as discontinued operations as of December 31, 2020, the results of operations related to those portfolios are no longer presented in reportable business segments. Accordingly, results of operations of those portfolios are not included in the reportable business segment analysis below. Refer to Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.

Non-GAAP Financial Measures

Net Operating Income

NOI and Adjusted NOI are non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measures used to evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses (which exclude transition costs); NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 14 to the Consolidated Financial Statements. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense. NOI and Adjusted NOI include our share of income (loss) generated by unconsolidated joint ventures and exclude noncontrolling interests’ share of income (loss) generated by consolidated joint ventures. Adjusted NOI is oftentimes referred to as “Cash NOI.” Management believes NOI and Adjusted NOI are important supplemental measures because they provide relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and present them on an unlevered basis. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Same-Store (“SS”) performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss) by segment, refer to Note 14 to the Consolidated Financial Statements.

Operating expenses generally relate to leased medical office and life science properties, as well as SHOP and CCRC facilities. We generally recover all or a portion of our leased medical office and life science property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.

Same-Store

Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the performance of our property portfolio under a consistent population by eliminating changes in the composition of our consolidated portfolio of properties. Same-Store Adjusted NOI excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis.

Properties are included in Same-Store once they are stabilized for the full period in both comparison periods. Newly acquired operating assets are generally considered stabilized at the earlier of lease-up (typically when the tenant(s) control(s) the physical use of at least 80% of the space and rental payments have commenced) or 12 months from the acquisition date. Newly completed developments and redevelopments are considered stabilized at the earlier of lease-up or 24 months from the date the property is placed in service. Properties that experience a change in reporting structure are considered stabilized after 12 months in operations under a consistent reporting structure. A property is removed from Same-Store when it is classified as held for sale, sold, placed into redevelopment, experiences a casualty event that significantly impacts operations, a change in reporting structure or operator transition has been agreed to, or a significant tenant relocates from a Same-Store property to a non Same-Store property and that change results in a corresponding increase in revenue. We do not report Same-Store metrics for our other non-reportable segments. For a reconciliation of Same-Store to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.

Funds From Operations (“FFO”)

FFO encompasses Nareit FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to address this issue.

Nareit FFO. FFO, as defined by the National Association of Real Estate Investment Trusts (“Nareit”), is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate, plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of Nareit FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of Nareit FFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint ventures in which we do not own 100%, we reflect our share of the equity by adjusting our Nareit FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-rata share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage for the period. We do not control the unconsolidated joint ventures, and the pro-rata presentations of reconciling items included in Nareit FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally according to their invested capital.

The presentation of pro-rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses and (ii) other companies in our industry may calculate their pro-rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the pro-rata financial information as a supplement.

Nareit FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income (loss). We compute Nareit FFO in accordance with the current Nareit definition; however, other REITs may report Nareit FFO differently or have a different interpretation of the current Nareit definition from ours.

FFO as Adjusted. In addition, we present Nareit FFO on an adjusted basis before the impact of non-comparable items including, but not limited to, transaction-related items, other impairments (recoveries) and other losses (gains), restructuring and severance related charges, prepayment costs (benefits) associated with early retirement or payment of debt, litigation costs (recoveries), casualty-related charges (recoveries), foreign currency remeasurement losses (gains), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). Transaction-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities. Prepayment costs (benefits) associated with early retirement of debt include the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of debt. Other impairments (recoveries) and other losses (gains) include interest income associated with early and partial repayments of loans receivable and other losses or gains associated with non-depreciable assets including goodwill, DFLs, undeveloped land parcels, and loans receivable. Management believes that FFO as Adjusted provides a meaningful supplemental measurement of our FFO run-rate and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. At the same time that Nareit created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe stockholders, potential investors, and financial analysts who review our operating performance are best served by an FFO run-rate earnings measure that includes certain other adjustments to net income (loss), in addition to adjustments made to arrive at the Nareit defined measure of FFO. FFO as Adjusted is used by management in analyzing our business and the performance of our properties and we believe it is important that stockholders, potential investors, and financial analysts understand this measure used by management. We use FFO as Adjusted to: (i) evaluate our performance in comparison with expected results and results of previous periods, relative to resource allocation decisions, (ii) evaluate the performance of our management, (iii) budget and forecast future results to assist in the allocation of resources, (iv) assess our performance as compared with similar real estate companies and the industry in general, and (v) evaluate how a specific potential investment will impact our future results. Other REITs or real estate companies may use different methodologies for calculating an adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable to those reported by other REITs. For a reconciliation of net income (loss) to Nareit FFO and FFO as Adjusted and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

Adjusted FFO (“AFFO”). AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) amortization of stock-based compensation, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, and (v) other AFFO adjustments which includes: (a) amortization of acquired market lease intangibles, net, (b) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (c) actuarial reserves for insurance claims that have been incurred but not reported, and (d) amortization of deferred revenues, excluding amounts amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash payments made by tenants to reduce their contractual rents. Also, AFFO is computed after deducting recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements, and includes adjustments to compute our share of AFFO from our unconsolidated joint ventures. More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements ("AFFO capital expenditures") excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of AFFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated joint ventures in which we do not own 100% of the equity by adjusting our AFFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods (reported in “other AFFO adjustments”). See FFO for further disclosure regarding our use of pro-rata share information and its limitations. Other REITs or real estate companies may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to those reported by other REITs. Although our AFFO computation may not be comparable to that of other REITs, management believes AFFO provides a meaningful supplemental measure of our performance and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. We believe AFFO is an alternative run-rate earnings measure that improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods, and (iii) results among REITs more meaningful. AFFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as it excludes the following items which generally flow through our cash flows from operating activities: (i) adjustments for changes in working capital or the actual timing of the payment of income or expense items that are accrued in the period, (ii) transaction-related costs, (iii) litigation settlement expenses, (iv) restructuring and severance-related charges, and (v) actual cash receipts from interest income recognized on loans receivable (in contrast to our AFFO adjustment to exclude non-cash interest and depreciation related to our investments in direct financing leases). Furthermore, AFFO is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations or liquidity. AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

Comparison of the Three and Nine Months Ended September 30, 2021 to the Three and Nine Months Ended September 30, 2020

Overview

Three Months Ended September 30, 2021 and 2020

The following table summarizes results for the three months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,
	2021		2020		Change

Net income (loss) applicable to common shares	$	54,442	$	(63,768)	$	118,210
Nareit FFO	194,914		164,603		30,311
FFO as Adjusted	217,471		213,529		3,942
AFFO	179,739		183,791		(4,052)

Net income (loss) applicable to common shares increased primarily as a result of the following:

NOI generated from our life science and medical office segments related to: (i) 2020 and 2021 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2020 and 2021, and (iii) new leasing activity during 2020 and 2021 (including the impact to straight-line rents);
an increase in income from discontinued operations, primarily due to an increase in gain on sales of real estate and lower impairments of depreciable real estate, partially offset by a goodwill impairment charge related to our senior housing triple-net and SHOP asset sales;
an increase in income tax benefit, primarily as a result of the income tax expense recognized during the third quarter of 2020 from the establishment of a deferred tax asset valuation allowance related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio;
an increase in our share of net income from an unconsolidated joint venture owning 19 SHOP assets;
a reduction in interest expense, primarily as a result of: (i) senior unsecured notes repurchases and redemptions in 2021 and (ii) repayment of the 2019 Term Loan in the third quarter of 2021;
a decrease in loss on debt extinguishments related to our redemption of certain outstanding senior notes in the third quarter of 2020;
an increase in gains on sale of depreciable real estate related to MOB asset sales during the third quarter of 2021;
a reduction in COVID-19 related expenses and increased rates for resident fees at our CCRCs; and
an increase in interest income, primarily as a result of seller financing, partially offset by principal repayments on loans receivable.

The increase in net income (loss) applicable to common shares was partially offset by:

an increase in depreciation, primarily as a result of: (i) 2020 and 2021 acquisitions of real estate, (ii) accelerated depreciation related to the change in estimated useful lives on certain of our densification projects, and (iii) development and redevelopment projects placed into service during 2020 and 2021; and
a reduction in other income, net as a result of a decline in government grant income received under the CARES Act.

Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:

net gain on sales of depreciable real estate;
impairment charges related to depreciable real estate; and
depreciation and amortization expense.

FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:

goodwill impairment charge related to our senior housing triple-net and SHOP asset sales; and
the loss on debt extinguishment.

AFFO decreased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents, which is excluded from AFFO. The decrease was further impacted by higher AFFO capital expenditures during the period.

Nine Months Ended September 30, 2021 and 2020

The following table summarizes results for the nine months ended September 30, 2021 and 2020 (in thousands):


	Nine Months Ended September 30,
	2021		2020		Change

Net income (loss) applicable to common shares	$	473,778	$	265,018	$	208,760
Nareit FFO	384,877		518,519		(133,642)
FFO as Adjusted	650,166		655,255		(5,089)
AFFO	553,578		583,343		(29,765)

Net income (loss) applicable to common shares increased primarily as a result of the following:

an increase in income from discontinued operations, primarily due to an increase in gain on sales of real estate and lower impairments of depreciable real estate, partially offset by a goodwill impairment charge related to our senior housing triple-net and SHOP asset sales;
an increase in gains on sale of depreciable real estate related to MOB asset sales during 2021;
NOI generated from our life science and medical office segments related to: (i) 2020 and 2021 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2020 and 2021, and (iii) new leasing activity during 2020 and 2021 (including the impact to straight-line rents);
a reduction in operating expenses related to our CCRCs primarily as a result of the management termination fee paid to Brookdale in connection with transitioning management of 13 CCRCs to Life Care Services LLC (“LCS”) during the first quarter of 2020;
an increase in our share of net income from an unconsolidated joint venture owning 19 SHOP assets;
a reduction in interest expense, primarily as a result of: (i) senior unsecured notes repurchases and redemptions in 2021 and (ii) repayment of the 2019 Term Loan in the third quarter of 2021;
an increase in interest income, primarily as a result of: (i) seller financing and (ii) the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable, partially offset by principal repayments on loans receivable;
a reduction in transaction costs, primarily as a result of costs associated with the transition of 13 CCRCs from Brookdale to LCS in the first quarter of 2020;
a reduction in impairment charges related to: (i) depreciable real estate and (ii) loan loss reserves, primarily as a result of principal repayments on loans receivable and loans receivable sales; and
an increase in rates for resident fees at our CCRCs.

The increase in net income (loss) applicable to common shares was partially offset by:

a reduction in other income, net as a result of: (i) a gain upon change of control related to the acquisition of the outstanding equity interest in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) a decline in government grant income received under the CARES Act;
an increase in loss on debt extinguishments related to our repurchase and redemption of certain outstanding senior notes in the first and second quarters of 2021;
an increase in depreciation, primarily as a result of: (i) 2020 and 2021 acquisitions of real estate, (ii) accelerated depreciation related to the change in estimated useful lives on certain of our densification projects, (iii) development and redevelopment projects placed into service during 2020 and 2021, and (iv) the above-mentioned acquisition of the outstanding equity interest and consolidation of 13 CCRCs from Brookdale during the first quarter of 2020; and
a decrease in income tax benefit, primarily as a result of the tax benefits recognized in the first quarter of 2020 related to the above-mentioned acquisition of the outstanding equity interest in 13 CCRCs from Brookdale and the management termination fee expense fee paid to Brookdale in connection with transitioning management to LCS, partially offset by the income tax expense recognized during the third quarter of 2020 from the establishment of a deferred tax asset valuation allowance related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio.

Nareit FFO decreased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:

net gain on sales of depreciable real estate;
the gain upon change of control related to the acquisition of Brookdale’s interest in 13 CCRCs;
depreciation and amortization expense; and
impairment charges related to depreciable real estate.

FFO as Adjusted decreased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:

the loss on debt extinguishment;
the management termination fee paid to Brookdale in connection with our acquisition of their interest in 13 CCRCs;
net gain on sales of assets underlying DFLs;
the transaction costs associated with transition of 13 CCRCs from Brookdale to LCS;
goodwill impairment charge related to senior housing triple-net and SHOP asset sales;
loan loss reserves; and
the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable.

Segment Analysis

The following tables provide selected operating information for our Same-Store and total property portfolio for each of our reportable segments. For the three months ended September 30, 2021, our Same-Store consists of 370 properties representing properties acquired or placed in service and stabilized on or prior to July 1, 2020 and that remained in operations under a consistent reporting structure through September 30, 2021. For the nine months ended September 30, 2021, our Same-Store consists of 351 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2020 and that remained in operations under a consistent reporting structure through September 30, 2021. Our total property portfolio consisted of 480 and 448 properties at September 30, 2021 and 2020, respectively.

Life Science

The following table summarizes results at and for the three months ended September 30, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio
	Three Months Ended September 30,									Three Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Rental and related revenues	$	127,287		$	121,337		$	5,950		$	184,213		$	148,702		$	35,511
Healthpeak’s share of unconsolidated joint venture total revenues	—			—			—			1,521			—			1,521
Noncontrolling interests’ share of consolidated joint venture total revenues	(56)			(59)			3			(82)			(66)			(16)
Operating expenses	(31,340)			(29,534)			(1,806)			(44,923)			(36,714)			(8,209)
Healthpeak’s share of unconsolidated joint venture operating expenses	—			—			—			(463)			—			(463)
Noncontrolling interests’ share of consolidated joint venture operating expenses	17			16			1			25			18			7

Adjustments to NOI(1)	(3,468)			(5,177)			1,709			(11,021)			(8,330)			(2,691)
Adjusted NOI	$	92,440		$	86,583		$	5,857		129,270			103,610			25,660
Less: non-SS Adjusted NOI										(36,830)			(17,027)			(19,803)
SS Adjusted NOI										$	92,440		$	86,583		$	5,857
Adjusted NOI % change							6.8		%
Property count(2)	111			111						146			136
End of period occupancy	97.1		%	96.8		%				97.1		%	96.3		%
Average occupancy	97.1		%	97.2		%				97.1		%	96.4		%
Average occupied square feet	7,550			7,555						10,021			8,844
Average annual total revenues per occupied square foot(3)	$	66		$	62					$	69		$	63
Average annual base rent per occupied square foot(4)	$	51		$	48					$	54		$	50

_______________________________________

(1)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(2)From our third quarter 2020 presentation of Same-Store, we removed one life science facility that was classified as held for sale, one life science facility that was placed into development, and one life science facility related to a significant tenant relocation.

(3)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

(4)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

annual rent escalations;
new leasing activity; and
mark-to-market lease renewals.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

NOI from (i) increased occupancy in developments and redevelopments placed into service in 2020 and 2021 and (ii) acquisitions in 2020.

The following table summarizes results at and for the nine months ended September 30, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Rental and related revenues	$	355,071		$	332,408		$	22,663		$	531,674		$	416,081		$	115,593
Healthpeak’s share of unconsolidated joint venture total revenues	—			—			—			4,270			—			4,270
Noncontrolling interests’ share of consolidated joint venture total revenues	(163)			(157)			(6)			(222)			(175)			(47)
Operating expenses	(82,754)			(78,479)			(4,275)			(125,108)			(101,120)			(23,988)
Healthpeak’s share of unconsolidated joint venture operating expenses	—			—			—			(1,316)			—			(1,316)
Noncontrolling interests’ share of consolidated joint venture operating expenses	47			47			—			66			53			13

Adjustments to NOI(1)	(11,814)			(11,967)			153			(35,197)			(15,389)			(19,808)
Adjusted NOI	$	260,387		$	241,852		$	18,535		374,167			299,450			74,717
Less: non-SS Adjusted NOI										(113,780)			(57,598)			(56,182)
SS Adjusted NOI										$	260,387		$	241,852		$	18,535
Adjusted NOI % change							7.7		%
Property count(2)	107			107						146			136
End of period occupancy	97.0		%	96.7		%				97.1		%	96.3		%
Average occupancy	97.3		%	96.6		%				96.9		%	95.8		%
Average occupied square feet	7,273			7,217						10,119			8,551
Average annual total revenues per occupied square foot(3)	$	63		$	59					$	66		$	62
Average annual base rent per occupied square foot(4)	$	50		$	47					$	52		$	50

_______________________________________

(1)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(2)From our third quarter 2020 presentation of Same-Store, we removed one life science facility that was classified as held for sale and one life science facility that was placed into development.

(3)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

annual rent escalations;
new leasing activity; and
mark-to-market lease renewals.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

NOI from (i) increased occupancy in developments and redevelopments placed into service in 2020 and 2021 and (ii) acquisitions in 2020.

Medical Office

The following table summarizes results at and for the three months ended September 30, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio(1)
	Three Months Ended September 30,									Three Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Rental and related revenues	$	136,378		$	132,633		$	3,745		$	169,303		$	153,231		$	16,072
Income from direct financing leases	2,179			2,150			29			2,179			2,150			29
Healthpeak’s share of unconsolidated joint venture total revenues	713			677			36			737			699			38
Noncontrolling interests’ share of consolidated joint venture total revenues	(8,659)			(8,481)			(178)			(8,954)			(8,788)			(166)
Operating expenses	(45,436)			(43,732)			(1,704)			(58,430)			(51,435)			(6,995)
Healthpeak’s share of unconsolidated joint venture operating expenses	(304)			(297)			(7)			(305)			(296)			(9)
Noncontrolling interests’ share of consolidated joint venture operating expenses	2,592			2,556			36			2,659			2,630			29

Adjustments to NOI(2)	(1,727)			(2,190)			463			(3,626)			(1,729)			(1,897)
Adjusted NOI	$	85,736		$	83,316		$	2,420		103,563			96,462			7,101
Less: non-SS Adjusted NOI										(17,827)			(13,146)			(4,681)
SS Adjusted NOI										$	85,736		$	83,316		$	2,420
Adjusted NOI % change							2.9		%
Property count(3)	244			244						300			276
End of period occupancy	91.9		%	92.4		%				90.1		%	91.0		%
Average occupancy	91.8		%	92.4		%				89.9		%	91.3		%
Average occupied square feet	18,071			18,181						21,337			20,023
Average annual total revenues per occupied square foot(4)	$	31		$	30					$	31		$	31
Average annual base rent per occupied square foot(5)	$	26		$	25					$	27		$	27

___________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)From our third quarter 2020 presentation of Same-Store, we removed six MOBs that were sold, four MOBs that were classified as held for sale, and three MOBs that were placed into redevelopment.

(4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

(5)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

mark-to-market lease renewals;
annual rent escalations; and
higher parking income and percentage-based rents.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

increased NOI from our 2020 and 2021 acquisitions;
increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
decreased NOI from our 2020 and 2021 dispositions.

The following table summarizes results at and for the nine months ended September 30, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio(1)
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Rental and related revenues	$	400,668		$	389,359		$	11,309		$	490,456		$	456,297		$	34,159
Income from direct financing leases	6,522			6,424			98			6,522			7,569			(1,047)
Healthpeak’s share of unconsolidated joint venture total revenues	2,095			2,018			77			2,162			2,085			77
Noncontrolling interests’ share of consolidated joint venture total revenues	(25,728)			(24,865)			(863)			(26,704)			(25,775)			(929)
Operating expenses	(131,128)			(127,929)			(3,199)			(164,198)			(151,484)			(12,714)
Healthpeak’s share of unconsolidated joint venture operating expenses	(915)			(846)			(69)			(915)			(846)			(69)
Noncontrolling interests’ share of consolidated joint venture operating expenses	7,499			7,518			(19)			7,714			7,737			(23)

Adjustments to NOI(2)	(4,869)			(4,917)			48			(7,553)			(3,188)			(4,365)
Adjusted NOI	$	254,144		$	246,762		$	7,382		307,484			292,395			15,089
Less: non-SS Adjusted NOI										(53,340)			(45,633)			(7,707)
SS Adjusted NOI										$	254,144		$	246,762		$	7,382
Adjusted NOI % change							3.0		%
Property count(3)	242			242						300			276
End of period occupancy	91.9		%	92.4		%				90.1		%	91.0		%
Average occupancy	91.9		%	92.4		%				90.1		%	91.6		%
Average occupied square feet	18,018			18,091						20,827			19,936
Average annual total revenues per occupied square foot(4)	$	31		$	30					$	31		$	31
Average annual base rent per occupied square foot(5)	$	26		$	25					$	27		$	27

_______________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)From our third quarter 2020 presentation of Same-Store, we removed six MOBs that were sold, four MOBs that were classified as held for sale, and three MOBs that were placed into redevelopment.

(4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

mark-to-market lease renewals;
annual rent escalations; and
higher parking income and percentage-based rents.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

increased NOI from our 2020 and 2021 acquisitions;
increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
decreased NOI from our 2020 and 2021 dispositions.

Continuing Care Retirement Community

The following table summarizes results at and for the three months ended September 30, 2021 and 2020 (dollars in thousands, except per unit data):


	SS									Total Portfolio
	Three Months Ended September 30,									Three Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Resident fees and services	$	119,022		$	115,031		$	3,991		$	119,022		$	115,031		$	3,991
Government grant income(1)	15			1,761			(1,746)			15			1,761			(1,746)
Healthpeak’s share of unconsolidated joint venture total revenues	—			—			—			—			4,295			(4,295)
Healthpeak’s share of unconsolidated joint venture government grant income	—			—			—			—			246			(246)


Operating expenses	(98,405)			(94,992)			(3,413)			(98,799)			(94,992)			(3,807)
Healthpeak’s share of unconsolidated joint venture operating expenses	—			—			—			(32)			(4,797)			4,765


Adjustments to NOI(2)	724			1,678			(954)			724			1,684			(960)
Adjusted NOI	$	21,356		$	23,478		$	(2,122)		20,930			23,228			(2,298)
Less: non-SS Adjusted NOI										426			250			176
SS Adjusted NOI										$	21,356		$	23,478		$	(2,122)
Adjusted NOI % change							(9.0)		%
Property count	15			15						15			17
Average occupancy	79.5		%	79.5		%				79.5		%	79.5		%
Average capacity (units)(3)	7,437			7,434						7,437			8,324
Average annual rent per unit	$	64,016		$	61,895					$	64,021		$	60,600

_______________________________________

(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)Represents average capacity as reported by the respective tenants or operators for the three-month period.

Same-Store Adjusted NOI and Total Portfolio Adjusted NOI decreased primarily as a result of the following:

decreased government grant income received under the CARES Act; and
higher labor costs; partially offset by
lower COVID-19 related expenses; and
increased rates for resident fees.

The following table summarizes results at and for the nine months ended September 30, 2021 and 2020 (dollars in thousands, except per unit data):


	SS									Total Portfolio
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2021			2020			Change			2021			2020			Change
Resident fees and services	$	55,484		$	57,032		$	(1,548)		$	352,458		$	320,737		$	31,721
Government grant income(1)	143			1,733			(1,590)			1,412			13,632			(12,220)
Healthpeak’s share of unconsolidated joint venture total revenues	—			—			—			6,903			30,723			(23,820)
Healthpeak’s share of unconsolidated joint venture government grant income	—			—			—			200			780			(580)


Operating expenses	(40,395)			(41,006)			611			(284,739)			(345,722)			60,983
Healthpeak’s share of unconsolidated joint venture operating expenses	—			—			—			(6,985)			(27,660)			20,675


Adjustments to NOI(2)	—			(1)			1			1,971			93,263			(91,292)
Adjusted NOI	$	15,232		$	17,758		$	(2,526)		71,220			85,753			(14,533)
Less: non-SS Adjusted NOI										(55,988)			(67,995)			12,007
SS Adjusted NOI										$	15,232		$	17,758		$	(2,526)
Adjusted NOI % change							(14.2)		%
Property count	2			2						15			17
Average occupancy	75.9		%	82.0		%				79.2		%	82.2		%
Average capacity (units)(3)	9,468			9,468						7,880			8,322
Average annual rent per unit	$	70,322		$	72,284					$	62,334		$	63,820

_______________________________________

(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)Represents average capacity as reported by the respective tenants or operators for the nine-month period.

Same-Store Adjusted NOI decreased primarily as a result of the following:

lower occupancy due to COVID-19;
decreased government grant income received under the CARES Act; and
higher labor costs; partially offset by
lower COVID-19 related expenses; and
increased rates for resident fees.

Total Portfolio Adjusted NOI decreased primarily as a result of the aforementioned decreases to Same-Store, which are also applicable to our properties not yet included in Same-Store.

Other Income and Expense Items

The following table summarizes the results of our other income and expense items for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,						Nine months ended September 30,
	2021		2020		Change		2021		2020		Change
Interest income	$	6,748	$	4,443	$	2,305	$	31,869	$	12,361	$	19,508
Interest expense	35,905		53,734		(17,829)		121,429		164,248		(42,819)
Depreciation and amortization	177,175		141,971		35,204		506,172		406,774		99,398
General and administrative	23,270		21,661		1,609		72,260		67,730		4,530
Transaction costs	—		1,984		(1,984)		1,417		16,920		(15,503)
Impairments and loan loss reserves (recoveries), net	285		(1,777)		2,062		4,458		16,167		(11,709)
Gain (loss) on sales of real estate, net	14,635		2,283		12,352		189,873		85,636		104,237
Gain (loss) on debt extinguishments	(667)		(17,921)		17,254		(225,824)		(42,912)		(182,912)
Other income (expense), net	1,670		6,744		(5,074)		5,604		234,812		(229,208)
Income tax benefit (expense)	649		(22,970)		23,619		1,404		6,792		(5,388)
Equity income (loss) from unconsolidated joint ventures	2,327		(18,749)		21,076		4,517		(47,630)		52,147
Income (loss) from discontinued operations	601		(31,819)		32,420		384,569		98,297		286,272
Noncontrolling interests’ share in continuing operations	(7,195)		(3,616)		(3,579)		(14,036)		(10,565)		(3,471)
Noncontrolling interests’ share in discontinued operations	—		(220)		220		(2,539)		(274)		(2,265)

Interest income

Interest income increased for the three and nine months ended September 30, 2021 primarily as a result of seller financing, partially offset by principal repayments on loans receivable. Interest income for the nine months ended September 30, 2021 further increased as result of the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable.

Interest expense

Interest expense decreased for the three and nine months ended September 30, 2021 primarily as a result of: (i) senior unsecured notes repurchases and redemptions in the first and second quarters of 2021 and (ii) repayment of the 2019 Term Loan in the third quarter of 2021.

Depreciation and amortization expense

Depreciation and amortization expense increased for the three and nine months ended September 30, 2021 primarily as a result of: (i) assets acquired during 2020 and 2021, (ii) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, (iii) development and redevelopment projects placed into service during 2020 and 2021, and (iv) accelerated depreciation related to the change in estimated useful lives on certain of our densification projects. The increase was partially offset by dispositions of real estate throughout 2020 and 2021.

General and administrative expense

General and administrative expenses increased for the three and nine months ended September 30, 2021 primarily as a result of higher travel and compensation costs. General and administrative expenses further increased for the nine months ended September 30, 2021 primarily as a result of increased restructuring and severance related charges.

Transaction Costs

Transaction costs decreased for the three and nine months ended September 30, 2021 primarily as a result of costs associated with the transition of 13 CCRCs from Brookdale to LCS in January 2020.

Impairments and loan loss reserves (recoveries), net

The impairment charges recognized in each period vary depending on facts and circumstances related to each asset and are impacted by negotiations with potential buyers, current operations of the assets, and other factors. Impairments and loan loss reserves (recoveries), net increased for the three months ended September 30, 2021 primarily as a result of: (i) additional assets impaired under the held for sale impairment model and (ii) a decrease in loan loss recoveries under the current expected credit losses model. Impairments and loan loss reserves (recoveries), net decreased for the nine months ended September 30, 2021 primarily as a result of: (i) fewer assets impaired under the held for sale impairment model and (ii) a decrease in loan loss reserves under the current expected credit losses model, partially offset by impairment charges on loans classified as held for sale. The reduction in loan loss recoveries during the three months ended September 30, 2021 is primarily due to: (i) principal repayments on loans receivable during the third quarter of 2021, (ii) loans receivable sales, and (iii) a more positive economic outlook. The reduction in loan loss reserves during the nine months ended September 30, 2021 is further impacted by: (i) loans receivable transferred from held for investment to held for sale during the nine months ended September 30, 2021 and (ii) the sale of two mezzanine loans as part of the Discovery SHOP Portfolio disposition. The reduction in loan loss reserves during the nine months ended September 30, 2021 is partially offset by the loan loss reserve recognized related to new seller financing issued in the first quarter of 2021.

Gain (loss) on sales of real estate, net

Gain (loss) on sales of real estate, net increased during the three months ended September 30, 2021 primarily as a result of the sale of three MOBs for $36 million during the three months ended September 30, 2021 resulting in total gain on sale of $15 million, compared to the sale of four MOBs for $14 million during the three months ended September 30, 2020 resulting in total gain on sale of $2 million. Gain (loss) on sales of real estate, net increased during the nine months ended September 30, 2021 primarily as a result of the sale of seven MOBs for $57 million and one hospital for $226 million during the nine months ended September 30, 2021 resulting in total gain on sale of $190 million, compared to the sale of seven MOBs for $120 million, one undeveloped MOB land parcel for $2 million, and one asset from other non-reportable segments for $1 million during the nine months ended September 30, 2020 resulting in total gain on sale of $86 million.

Gain (loss) on debt extinguishments

Refer to Note 10 to the Consolidated Financial Statements for information regarding senior unsecured note repurchases and redemptions and the associated loss on debt extinguishment recognized.

Other income (expense), net

Other income (expense), net decreased for the three months ended September 30, 2021 primarily as a result of a decline in government grant income received under the CARES Act.

Other income (expense), net decreased for the nine months ended September 30, 2021 primarily as a result of: (i) a gain upon change of control related to the acquisition of the outstanding equity interest in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) a decline in government grant income received under the CARES Act.

Income tax benefit (expense)

Income tax benefit increased for the three months ended September 30, 2021 primarily as a result of the income tax expense recognized during the third quarter of 2020 from the establishment of a deferred tax asset valuation allowance related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio. Income tax benefit decreased for the nine months ended September 30, 2021 primarily as a result of the tax benefits recognized in the first quarter of 2020 related to the following: (i) the purchase of Brookdale’s interest in 13 of the 15 communities in the CCRC JV, including the management termination fee expense paid to Brookdale in connection with transitioning management of 13 CCRCs to LCS, and (ii) the extension of the net operating loss carryback period provided by the CARES Act. The decrease in income tax benefit during the nine months ended September 30, 2021 was partially offset by the aforementioned establishment of a deferred tax asset valuation allowance during the third quarter of 2020 related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio.

Equity income (loss) from unconsolidated joint ventures

Equity income from unconsolidated joint ventures increased for the three and nine months ended September 30, 2021 as a result of a decrease in amortization expense due to fully amortized intangible assets related to an unconsolidated joint venture owning 19 SHOP assets. The increase in equity income from unconsolidated joint ventures for the nine months ended September 30, 2021 was partially offset by our share of a gain on sale of one asset in an unconsolidated joint venture during the first quarter of 2020.

Income (loss) from discontinued operations

Income from discontinued operations increased for the three and nine months ended September 30, 2021 primarily as a result of: (i) increased gain on sales of real estate from the disposal of multiple senior housing portfolios during 2021; (ii) decreased depreciation and amortization expense due to assets being classified as held for sale throughout 2020; and (iii) decreased impairments of depreciable real estate as a result of fewer assets being impaired under the held for sale impairment model. The increase in income (loss) from discontinued operations during the three and nine months ended September 30, 2021 was partially offset by decreased NOI from dispositions of real estate during 2020 and 2021.

Liquidity and Capital Resources

We anticipate that our cash flow from operations, available cash balances and cash from our various financing activities will be adequate for at least the next 12 months for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying our obligations to make distributions to our stockholders and non-controlling interest members. Distributions were made using a combination of cash flows from operations, funds available under our bank line of credit and commercial paper program, proceeds from the sale of properties, and other sources of cash available to us.

Our principal investing liquidity needs for the next 12 months are to:

fund capital expenditures, including tenant improvements and leasing costs; and
fund future acquisition, transactional and development and redevelopment activities.

We anticipate satisfying these future investing needs using one or more of the following:

cash flow from operations;
sale of, or exchange of ownership interests in, properties or other investments;
borrowings under our bank line of credit and commercial paper program;
issuance of additional debt, including unsecured notes, term loans and mortgage debt; and/or
issuance of common or preferred stock or its equivalent.

Our ability to access the capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our bank line of credit accrues interest at a rate per annum equal to the base rate or LIBOR (or other applicable rate with respect to non-dollar borrowings) plus a margin that depends upon the Company’s credit ratings for its senior unsecured long-term debt. We also pay a facility fee on the entire revolving commitment that depends upon our credit ratings. As of November 1, 2021, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global and Fitch, and short-term credit ratings of P-2, A-2, and F2 from Moody’s, S&P Global, and Fitch, respectively.

A downgrade in credit ratings by Moody’s, S&P Global, and Fitch may have a negative impact on the interest rates and facility fees for our bank line of credit and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes. While a downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we would continue to have access to the unsecured debt markets, and we could also seek to enter into one or more secured debt financings, issue additional securities, including under our 2020 ATM Program (as defined below), or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard. Refer to “COVID-19 Update” above for a more comprehensive discussion of the potential impact of COVID-19 on our business.

Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

The following table sets forth changes in cash flows (in thousands):


	Nine Months Ended September 30,
	2021		2020		Change
Net cash provided by (used in) operating activities	$	571,335	$	539,724	$	31,611
Net cash provided by (used in) investing activities	1,203,675		(766,478)		1,970,153
Net cash provided by (used in) financing activities	(1,687,889)		341,788		(2,029,677)

Operating Cash Flows

The increase in operating cash flow is primarily the result of an increase in income related to: (i) 2020 and 2021 acquisitions, (ii) annual rent increases, (iii) new leasing activity, and (iv) developments and redevelopments placed in service during 2020 and 2021. The increase in operating cash flow is partially offset by a decrease in income related to assets sold during 2020 and 2021. Our cash flow from operations is dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and other factors.

Investing Cash Flows

The following are significant investing activities for the nine months ended September 30, 2021:

made investments of $1.5 billion primarily related to the acquisition, development, and redevelopment of real estate and funding of new and existing loans; and
received net proceeds of $2.7 billion primarily from sales of real estate assets and repayments on loans receivable.

The following are significant investing activities for the nine months ended September 30, 2020:

made investments of $1.47 billion primarily related to the acquisition, development, and redevelopment of real estate and funding of new and existing loans; and
received net proceeds of $700 million primarily from sales of real estate assets, repayments on loans receivable, and the sale of a hospital under a DFL.

Financing Cash Flows

The following are significant financing activities for the nine months ended September 30, 2021:

made net borrowings of $894 million under our bank line of credit and commercial paper program;
made net repayments of $2.1 billion under our senior unsecured notes (including debt extinguishment costs) and mortgage debt; and
paid cash dividends on common stock of $488 million.

The following are significant financing activities for the nine months ended September 30, 2020:

made net repayments of $105 million under our bank line of credit, commercial paper program, senior unsecured notes (including debt extinguishment costs) and mortgage debt;
issued common stock of $1.07 billion; and
paid cash dividends on common stock of $588 million.

Discontinued Operations

Operating, investing, and financing cash flows in our Consolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and cash flows from discontinued operations. Certain significant cash flows from discontinued operations are disclosed in Note 15 to the Consolidated Financial Statements. The absence of future cash flows from discontinued operations is not expected to significantly impact our liquidity, as the proceeds from senior housing triple-net and SHOP dispositions are expected to be used to pay down debt and invest in additional real estate in our other business lines. Additionally, we have multiple other sources of liquidity that can be utilized in the future, as needed. Refer to the Liquidity and Capital Resources section above for additional information regarding our liquidity.

Debt

In January 2021, we repurchased $112 million aggregate principal amount of our 4.25% senior unsecured notes due 2023, $201 million aggregate principal amount of our 4.20% senior unsecured notes due 2024, and $469 million aggregate principal amount of our 3.88% senior unsecured notes due 2024.

In February 2021, we used optional redemption provisions to redeem the remaining $188 million of our 4.25% senior unsecured notes due 2023, $149 million of our 4.20% senior unsecured notes due 2024, and $331 million of our 3.88% senior unsecured notes due 2024.

In April 2021, in conjunction with the acquisition of the MOB Portfolio, we originated $142 million of secured mortgage debt. Additionally, we executed two interest rate cap agreements on the mortgage debt.

In May 2021, we repurchased $252 million aggregate principal amount of our 3.40% senior unsecured notes due 2025 and $298 million aggregate principal amount of our 4.00% senior unsecured notes due 2025.

In July 2021, we completed our inaugural green bond offering, issuing $450 million aggregate principal amount of 1.35% senior unsecured notes due 2027.

In July 2021, we repaid the $250 million outstanding balance on the 2019 Term Loan.

In September 2021, we amended our bank line of credit facility to increase total revolving commitments from $2.5 billion to $3.0 billion and extended the maturity date to January 20, 2026.

In 2021, we increased the maximum aggregate face or principal amount that can be outstanding at any one time under our commercial paper program from $1.0 billion to $1.5 billion.

See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.

Approximately 79% and 96% of our consolidated debt, excluding debt classified as liabilities related to assets held for sale and discontinued operations, net, was fixed rate debt as of September 30, 2021 and 2020, respectively. At September 30, 2021, our fixed rate debt and variable rate debt had weighted average interest rates of 3.52% and 0.52%, respectively. At September 30, 2020, our fixed rate debt and variable rate debt had weighted average interest rates of 3.87% and 1.14%, respectively. As of September 30, 2021 and 2020, we had zero and $41 million, respectively, of variable rate debt swapped to fixed through interest rate swaps, which is reported in liabilities related to assets held for sale and discontinued operations, net. As of September 30, 2021 and 2020, we had $142 million and zero, respectively, of variable rate debt subject to interest rate cap agreements. For a more detailed discussion of our interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 3 below.

Equity

At September 30, 2021, we had 539 million shares of common stock outstanding, equity totaled $7.22 billion, and our equity securities had a market value of $18.29 billion. At June 30, 2021, March 31, 2021, December 31, 2020 and December 31, 2019, our equity totaled $7.35 billion, $7.24 billion, $7.29 billion and $6.66 billion, respectively.

At September 30, 2021, non-managing members held an aggregate of five million units in seven limited liability companies (“DownREITs”) for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). At September 30, 2021, the outstanding DownREIT units were convertible into approximately seven million shares of our common stock.

At-The-Market Program

In February 2020, we terminated our previous at-the-market equity offering program and concurrently established a new at-the-market equity offering program (as amended from time to time, the “2020 ATM Program”). In May 2021, we amended the 2020 ATM Program to increase the size of the program from $1.25 billion to $1.5 billion. In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of our shares of common stock under our 2020 ATM Program.

During the three and nine months ended September 30, 2021, we utilized the forward provisions under the 2020 ATM Program to allow for the sale of an aggregate of 9.1 million shares of our common stock at an initial weighted average net price of $35.25 per share, after commissions.

During the three and nine months ended September 30, 2021, no shares were settled under ATM forward contracts. Therefore, at September 30, 2021, 9.1 million shares remained outstanding under ATM forward contracts.

During the three and nine months ended September 30, 2021, we did not issue any shares of our common stock under any ATM Program.

At September 30, 2021, $1.18 billion of our common stock remained available for sale under the 2020 ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any of the remaining shares under our 2020 ATM Program.

See Note 12 to the Consolidated Financial Statements for additional information about our 2020 ATM Program.

Shelf Registration

In May 2021, we filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on May 13, 2024 and at or prior to such time, we expect to file a new shelf registration statement. Under the “shelf” process, we may sell any combination of the securities described in the prospectus through one or more offerings. The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities, and warrants.

Contractual Obligations and Off-Balance Sheet Arrangements

Our commitments, which are primarily related to development and redevelopment projects and tenant improvements, increased by $89 million, to $395 million at September 30, 2021, when compared to December 31, 2020, primarily as a result of increased commitments on existing projects and new projects started during 2021.

Our commitments to fund senior housing redevelopment and capital expenditures increased by $48 million, to $59 million at September 30, 2021, when compared to December 31, 2020, primarily as a result of a commitment to finance additional debt for capital expenditures on the Sunrise Senior Housing Portfolio sold during the nine months ended September 30, 2021.

Our commitments related to debt have materially changed since December 31, 2020 as a result of issuances of securities under our commercial paper program, the repurchase and redemption of senior unsecured notes in January, February and May 2021, repayments on mortgage debt, the issuance of $450 million 1.35% senior unsecured notes due 2027 in July 2021, the repayment of our 2019 Term Loan in July 2021, and the amendment and restatement of our bank line of credit facility in September 2021. As of September 30, 2021, we had $1.02 billion outstanding under our commercial paper program. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.

There have been no other material changes, outside of the ordinary course of business, to these contractual obligations during the nine months ended September 30, 2021.

We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Except in limited circumstances, our risk of loss is limited to our investment in the joint ventures.

As described in Note 12 to the Consolidated Financial Statements, certain of our noncontrolling interest holders have the ability to put their equity interests to us upon specified events or after the passage of a predetermined period of time. Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements.

We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except for commitments included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 in “Contractual Obligations” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Non-GAAP Financial Measures Reconciliations

The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Nareit FFO, FFO as Adjusted, and AFFO (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss) applicable to common shares	$	54,442	$	(63,768)	$	473,778	$	265,018
Real estate related depreciation and amortization(1)	177,175		173,630		506,172		541,394
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures	4,722		24,822		12,044		80,050
Noncontrolling interests’ share of real estate related depreciation and amortization	(4,849)		(5,020)		(14,599)		(15,043)
Other real estate-related depreciation and amortization	—		319		—		2,447
Loss (gain) on sales of depreciable real estate, net(1)	(41,393)		(149)		(598,531)		(247,881)
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures	(1,068)		—		(6,934)		(9,248)
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net	3,450		—		5,628		(3)
Loss (gain) upon change of control, net(2)	—		(3,259)		(1,042)		(173,222)
Taxes associated with real estate dispositions	483		551		2,666		(10,989)
Impairments (recoveries) of depreciable real estate, net	1,952		37,477		5,695		85,996
Nareit FFO applicable to common shares	194,914		164,603		384,877		518,519
Distributions on dilutive convertible units and other	1,651		—		—		5,380
Diluted Nareit FFO applicable to common shares	$	196,565	$	164,603	$	384,877	$	523,899

Weighted average shares outstanding - diluted Nareit FFO	544,889		538,645		539,159		533,963

Impact of adjustments to Nareit FFO:
Transaction-related items(3)	$	1,259	$	2,276	$	6,638	$	95,342
Other impairments (recoveries) and other losses (gains), net(4)	20,073		(2,927)		25,161		(29,943)
Restructuring and severance related charges	—		—		2,463		—
Loss (gain) on debt extinguishments	667		17,921		225,824		42,912

Litigation costs (recoveries)	—		26		—		232
Casualty-related charges (recoveries), net	558		469		5,203		469
Foreign currency remeasurement losses (gains)	—		—		—		153
Valuation allowance on deferred tax assets(5)	—		31,161		—		31,161
Tax rate legislation impact(6)	—		—		—		(3,590)
Total adjustments	$	22,557	$	48,926	$	265,289	$	136,736

FFO as Adjusted applicable to common shares	$	217,471	$	213,529	$	650,166	$	655,255
Distributions on dilutive convertible units and other	2,313		1,852		6,323		5,244
Diluted FFO as Adjusted applicable to common shares	$	219,784	$	215,381	$	656,489	$	660,499

Weighted average shares outstanding - diluted FFO as Adjusted	546,714		544,146		546,485		533,963


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
FFO as Adjusted applicable to common shares	$	217,471	$	213,529	$	650,166	$	655,255
Amortization of stock-based compensation	4,436		4,420		13,895		13,392
Amortization of deferred financing costs	2,343		2,554		6,677		7,670
Straight-line rents	(8,290)		(9,542)		(23,627)		(24,086)
AFFO capital expenditures	(28,980)		(20,756)		(72,112)		(61,329)


Deferred income taxes	(1,747)		(7,300)		(6,240)		(9,200)
Other AFFO adjustments	(5,494)		886		(15,181)		1,641
AFFO applicable to common shares	179,739		183,791		553,578		583,343
Distributions on dilutive convertible units and other	1,650		—		4,512		5,380
Diluted AFFO applicable to common shares	$	181,389	$	183,791	$	558,090	$	588,723

Weighted average shares outstanding - diluted AFFO	544,889		538,645		544,660		533,963


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Diluted earnings per common share	$	0.10	$	(0.12)	$	0.88	$	0.50
Depreciation and amortization	0.33		0.37		0.93		1.14
Loss (gain) on sales of depreciable real estate, net	(0.07)		0.00		(1.11)		(0.48)
Loss (gain) upon change of control, net(2)	—		(0.01)		0.00		(0.32)
Taxes associated with real estate dispositions	0.00		0.00		0.00		(0.02)
Impairments (recoveries) of depreciable real estate, net	0.00		0.07		0.01		0.16
Diluted Nareit FFO per common share	$	0.36	$	0.31	$	0.71	$	0.98
Transaction-related items(3)	0.00		0.01		0.01		0.18
Other impairments (recoveries) and other losses (gains), net(4)	0.04		(0.01)		0.05		(0.06)
Restructuring and severance related charges	—		—		0.00		—
Loss (gain) on debt extinguishments	0.00		0.03		0.42		0.09

Litigation costs (recoveries)	—		0.00		—		0.00
Casualty-related charges (recoveries), net	0.00		0.00		0.01		0.00
Foreign currency remeasurement losses (gains)	—		—		—		0.00
Valuation allowance on deferred tax assets(5)	—		0.06		—		0.06
Tax rate legislation impact(6)	—		—		—		(0.01)
Diluted FFO as Adjusted per common share	$	0.40	$	0.40	$	1.20	$	1.24

_______________________________________

(1)This amount can be reconciled by combining the balances from the corresponding line of the Consolidated Statements of Operations and the detailed financial information for discontinued operations in Note 5 to the Consolidated Financial Statements.

(2)For the nine months ended September 30, 2020, includes a $170 million gain upon consolidation of 13 continuing care retirement communities ("CCRCs") in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020. Gains and losses upon change of control are included in other income (expense), net in the Consolidated Statements of Operations.

(3)For the nine months ended September 30, 2020, includes the termination fee and transition fee expenses related to terminating the management agreements with Brookdale for 13 CCRCs and transitioning those communities to Life Care Services, LLC, partially offset by the tax benefit recognized related to those expenses. The expenses related to terminating management agreements are included in operating expenses in the Consolidated Statements of Operations.

(4)For the three and nine months ended September 30, 2021, includes a $22 million and $29 million goodwill impairment charge, respectively, in connection with our senior housing triple-net and SHOP asset sales which are reported in income (loss) from discontinued operations in the Consolidated Statements of Operations. The nine months ended September 30, 2021 also includes $6 million of accelerated recognition of a mark-to-market discount, less loan fees, resulting from prepayments on loans receivable which is included in interest income in the Consolidated Statements of Operations. For the nine months ended September 30, 2020, includes a $42 million gain on sale of a hospital that was in a direct financing lease ("DFL") which is included in other income (expense), net in the Consolidated Statements of Operations. The remaining activity for the three and nine months ended September 30, 2021 and 2020 includes reserves for loan losses and land impairments recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.

(5)For the three and nine months ended September 30, 2020, represents the valuation allowance and corresponding income tax expense related to deferred tax assets that are no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio. We determined we were unlikely to hold the assets long enough to realize the future value of certain deferred tax assets generated by the net operating losses of our taxable REIT subsidiaries.

(6)For the nine months ended September 30, 2020, represents the tax benefit from the CARES Act, which extended the net operating loss carryback period to five years.

For a reconciliation of Adjusted NOI to net income (loss), refer to Note 14 to the Consolidated Financial Statements. For a reconciliation of Same-Store Adjusted NOI to total portfolio Adjusted NOI by segment, refer to the analysis of each segment in “Results of Operations” above.

Critical Accounting Policies and Recent Accounting Pronouncements

The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to the Consolidated Financial Statements. There have been no significant changes to our critical accounting policies during the three and nine months ended September 30, 2021.

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