Item 6. Selected Financial Data

The following selected financial data for the five years ended December 31, 2015 are derived from our audited consolidated financial statements (in thousands, except per share data):

			Year Ended December 31,
			2011			2012			2013			2014			2015
Operating Data
Revenues			$	1,313,182		$	1,805,044		$	2,880,608		$	3,343,546		$	3,859,826
Expenses				1,200,979			1,619,132			2,778,363			2,959,333			3,223,709
Income from continuing operations before income taxes and income (loss) from unconsolidated entities				112,203			185,912			102,245			384,213			636,117
Income tax (expense) benefit				(1,388)			(7,612)			(7,491)			1,267			(6,451)
Income (loss) from unconsolidated entities				5,772			2,482			(8,187)			(27,426)			(21,504)
Income from continuing operations				116,587			180,782			86,567			358,054			608,162
Income from discontinued operations, net				96,129			114,058			51,713			7,135			-
Gain (loss) on real estate dispositions, net				-			-			-			147,111			280,387
Net income				212,716			294,840			138,280			512,300			888,549
Preferred stock dividends				60,502			69,129			66,336			65,408			65,406
Preferred stock redemption charge				-			6,242			-			-			-
Net income (loss) attributable to noncontrolling interests				(4,894)			(2,415)			(6,770)			147			4,799
Net income attributable to common stockholders			$	157,108		$	221,884		$	78,714		$	446,745		$	818,344
Other Data
Average number of common shares outstanding:
	Basic			173,741			224,343			276,929			306,272			348,240
	Diluted			174,401			225,953			278,761			307,747			349,424
Per Share Data
Basic:
	Income from continuing operations attributable to common stockholders		$	0.35		$	0.48		$	0.10		$	1.44		$	2.35
	Discontinued operations, net			0.55			0.51			0.19			0.02			-
	Net income attributable to common stockholders *		$	0.90		$	0.99		$	0.28		$	1.46		$	2.35
Diluted:
	Income from continuing operations attributable to common stockholders		$	0.35		$	0.48		$	0.10		$	1.43		$	2.34
	Discontinued operations, net			0.55			0.50			0.19			0.02			-
	Net income attributable to common stockholders *		$	0.90		$	0.98		$	0.28		$	1.45		$	2.34
Cash distributions per common share			$	2.835		$	2.96		$	3.06		$	3.18		$	3.30
				December 31,
Balance Sheet Data				2011			2012			2013			2014			2015
	Net real estate investments		$	13,942,350		$	17,423,009		$	21,680,221		$	22,851,196		$	26,888,685
	Total assets(1)			14,878,245			19,491,552			23,026,666			24,962,923			29,023,845
	Total long-term obligations(1)			7,194,391			8,474,342			10,594,723			10,776,640			12,967,686
	Total liabilities(1)			7,565,948			8,936,441			11,235,296			11,403,465			13,664,877
	Total preferred stock			1,010,417			1,022,917			1,017,361			1,006,250			1,006,250
	Total equity			7,278,647			10,520,519			11,756,331			13,473,049			15,175,885
	* Amounts may not sum due to rounding
	(1) In 2015, we adopted new guidance on the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. Adopting this guidance resulted in a reduction to total assets, total long-term obligations and total liabilities, which are presented for all periods above in accordance with this new guidance. See Note 2 to our consolidated financial statements for additional information.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	EXECUTIVE SUMMARY
	Company Overview Business Strategy Capital Market Outlook Key Transactions in 2015 Key Performance Indicators, Trends and Uncertainties Corporate Governance	49 49 50 50 51 52
	LIQUIDITY AND CAPITAL RESOURCES
	Sources and Uses of Cash Off-Balance Sheet Arrangements Contractual Obligations Capital Structure	52 53 53 54
	RESULTS OF OPERATIONS
	Summary Triple-net Seniors Housing Operating Outpatient Medical Non-Segment/Corporate	56 57 60 62 64
	OTHER
	Non-GAAP Financial Measures	65
	Critical Accounting Policies	69

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based primarily on the consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk Factors” above.

Executive Summary

Company Overview

Welltower Inc. (NYSE: HCN), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. WelltowerTM, a real estate investment trust (“REIT”), owns properties in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets.

The following table summarizes our consolidated portfolio for the year ended December 31, 2015 (dollars in thousands):

	Net Operating			Percentage of		Number of
Type of Property	Income (NOI)(1)			NOI		Properties
Triple-net	$	1,200,301		53.6%		779
Seniors housing operating		701,262		31.4%		388
Outpatient medical		334,915		15.0%		259
Totals	$	2,236,478		100.0%		1,426
(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.

Business Strategy

Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location.

Substantially all of our revenues are derived from operating lease rentals, resident fees and services, and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our customers/partners experience operating difficulties and become unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the outpatient medical portfolio with a comprehensive process including review of, among other things, tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.

In addition to our asset management and research efforts, we also structure our investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.

For the year ended December 31, 2015, rental income and resident fees represented 41% and 56%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.

We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which generally replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also possible that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our primary unsecured credit facility. At December 31, 2015, we had $360,908,000 of cash and cash equivalents, $61,782,000 of restricted cash and $1,610,075,000 of available borrowing capacity under our primary unsecured credit facility.

Capital Market Outlook

We believe the capital markets remain supportive of our investment strategy. For the year ended December 31, 2015, we raised $3,272,283,000 in aggregate gross proceeds through the issuance of common stock and unsecured debt. The capital raised, in combination with available cash and borrowing capacity under our primary unsecured credit facility, supported pro rata gross new investments of $4,819,684,000 for the year. We expect attractive investment opportunities to remain available in the future as we continue to leverage the benefits of our relationship investment strategy.

Key Transactions in 2015

Capital. In February 2015, we completed the public issuance of 19,550,000 shares of common stock at a price of $75.50 per share for approximate gross proceeds of $1,476,025,000. This was the largest overnight common stock offering and the highest offering price in our history. In May 2015, we issued $750,000,000 of 4.0% senior unsecured notes due 2025, generating approximately $743,407,000 of net proceeds. This was the largest single tranche U.S. debt offering in our history. In October 2015, we re-opened this tranche and issued an additional $500,000,000 of these notes, generating net proceeds of approximately $484,660,000. Also during October 2015, we raised approximately $47,463,000 under our Equity Shelf Program (as defined below). In November 2015, we issued $300,000,000 of Canadian-denominated 3.35% senior unsecured notes due 2020, generating net proceeds of $223,367,000. Also, for the year ended December 31, 2015, we raised $272,531,000 through our dividend reinvestment program.

Investments. The following summarizes our acquisitions and joint venture investments made during the year ended December 31, 2015 (dollars in thousands):

	Properties		Investment Amount(1)		Capitalization Rates(2)			Book Amount(3)
Triple-net	76	$	1,501,537		6.8%		$	1,506,179
Seniors housing operating	77		2,093,482		6.2%			2,814,878
Outpatient medical	11		170,499		6.0%			540,338
Total acquisitions/JVs	164	$	3,765,518		6.4%		$	4,861,395
(1) Represents stated purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(2) Represents annualized contractual or projected income to be received in cash divided by investment amounts.
(3) Represents amounts recorded on our books including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our consolidated financial statements for additional information.

Dispositions. The following summarizes property dispositions made during the year ended December 31, 2015 (dollars in thousands):

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Properties		Proceeds(1)		Capitalization Rates(2)			Book Amount(3)
Triple-net	26	$	440,576		7.7%		$	362,024
Outpatient medical	11		608,101		5.2%			181,553
Total property sales	37	$	1,048,677		6.2%		$	543,577
(1) Represents pro rata proceeds received upon disposition including any seller financing.
(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds.
(3) Represents carrying value of assets at time of disposition. See Note 5 to our audited consolidated financial statements for additional information.

Dividends. Our Board of Directors increased the annual cash dividend to $3.44 per common share ($0.86 per share quarterly), as compared to $3.30 per common share for 2015, beginning in February 2016. The dividend declared for the quarter ended December 31, 2015 represents the 179th consecutive quarterly dividend payment.

Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to operating performance, credit strength and concentration risk. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results, in making operating decisions and for budget planning purposes.

Operating Performance. We believe that net income attributable to common stockholders (“NICS”) is the most appropriate earnings measure. Other useful supplemental measures of our operating performance include funds from operations (“FFO”), net operating income from continuing operations (“NOI”) and same store cash NOI (“SSCNOI”); however, these supplemental measures are not defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations of FFO, NOI and SSCNOI. These earnings measures are widely used by investors and analysts in the valuation, comparison and investment recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands):

				Year Ended December 31,
				2013			2014			2015
Net income attributable to common stockholders				$	78,714		$	446,745		$	818,344
Funds from operations					924,884			1,174,081			1,409,640
Net operating income from continuing operations					1,673,795			1,940,188			2,237,569
Same store cash net operating income					1,145,629			1,192,245			1,213,752

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain compliance with our debt covenants. The coverage ratios are based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:

				Year Ended December 31,
				2013		2014		2015
Debt to book capitalization ratio				48%		45%		46%
Debt to undepreciated book capitalization ratio				43%		40%		41%
Debt to market capitalization ratio				39%		29%		33%
Adjusted interest coverage ratio				3.23x		3.86x		4.57x
Adjusted fixed charge coverage ratio				2.56x		3.06x		3.61x

Concentration Risk. We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

experience downturns. Property mix measures the portion of our NOI that relates to our various property types. Relationship mix measures the portion of our NOI that relates to our top five relationships. Geographic mix measures the portion of our NOI that relates to our top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by NOI for the periods indicated below:

				December 31,
				2013		2014		2015
Property mix:(1)
	Triple-net			53%		53%		54%
	Seniors housing operating			32%		33%		31%
	Outpatient medical			15%		14%		15%
Relationship mix:(1)
	Genesis Healthcare			17%		16%		17%
	Sunrise Senior Living(2)			13%		15%		13%
	Brookdale Senior Living			7%		9%		7%
	Revera(2)			3%		4%		5%
	Benchmark Senior Living			4%		4%		4%
	Remaining customers			56%		52%		54%
Geographic mix:(1)
	California			10%		10%		10%
	United Kingdom			6%		7%		9%
	New Jersey			9%		8%		8%
	Texas			7%		7%		7%
	Pennsylvania			6%		5%		6%
	Remaining			62%		63%		60%
(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.
(2) Revera owns a controlling interest in Sunrise Senior Living.

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Item 1 — Business — Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A — Risk Factors” and other sections of this Annual Report on Form 10-K. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to “Item 1 — Business,” “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for further discussion of these risk factors.

Corporate Governance

Maintaining investor confidence and trust is important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at www.welltower.com/#investors/governance. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances,

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

property operating expenses, and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows (dollars in thousands):

		Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
		December, 31			December, 31								December, 31
		2013			2014			$			%		2015			$			%		$			%
Beginning cash and cash equivalents		$	1,033,764		$	158,780		$	(874,984)		-85%		$	473,726		$	314,946		198%		$	(560,038)		-54%
Cash provided from (used in):
Operating activities			988,497			1,138,670			150,173		15%			1,373,468			234,798		21%			384,971		39%
Investing activities			(3,531,593)			(2,126,206)			1,405,387		-40%			(3,484,160)			(1,357,954)		64%			47,433		-1%
Financing activities			1,667,670			1,303,172			(364,498)		-22%			2,006,449			703,277		54%			338,779		20%
Effect of foreign currency translation on cash and cash equivalents			442			(690)			(1,132)		n/a			(8,575)			(7,885)		1,143%			(9,017)		n/a
Ending cash and cash equivalents		$	158,780		$	473,726		$	314,946		198%		$	360,908		$	(112,818)		-24%		$	202,128		127%

Operating Activities. The change in net cash provided from operating activities is primarily attributable to increases in NOI which is primarily due to acquisitions. Please see “Results of Operations” for further discussion. For the years ended December 31, 2013, 2014 and 2015, cash flows from operations exceeded cash distributions to stockholders.

Investing Activities. The changes in net cash used in investing activities are primarily attributable to acquisitions, real estate loans receivable and investments in unconsolidated entities which are summarized above in “Key Transactions in 2015.” Please refer to Notes 3 and 6 of our consolidated financial statements for additional information. The following is a summary of non-acquisition capital improvements (dollars in thousands):

		Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
		December 31,			December 31,								December 31,
		2013			2014			$			%		2015			$			%		$			%
New development		$	247,560		$	197,881		$	(49,679)		-20%		$	244,561		$	46,680		24%		$	(2,999)		-1%
Recurring capital expenditures, tenant improvements and lease commissions			60,984			59,134			(1,850)		-3%			64,458			5,324		9%			3,474		6%
Renovations, redevelopments and other capital improvements			74,848			73,646			(1,202)		-2%			123,294			49,648		67%			48,446		65%
Total		$	383,392		$	330,661		$	(52,731)		-14%		$	432,313		$	101,652		31%		$	48,921		13%

The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods. Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization.

Financing Activities. The changes in net cash provided from financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuance/redemptions of common and preferred stock, and dividend payments which are summarized above in “Key Transactions in 2015.” Please refer to Notes 9, 10 and 13 of our consolidated financial statements for additional information.

Off-Balance Sheet Arrangements

At December 31, 2015, we had investments in unconsolidated entities with our ownership ranging from 10% to 50%. Please see Note 7 to our consolidated financial statements for additional information. We use financial derivative instruments to hedge interest rate exposure. Please see Note 11 to our consolidated financial statements for additional information. At December 31, 2015, we had nine outstanding letter of credit obligations. Please see Note 12 to our consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of December 31, 2015 (in thousands):

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

		Payments Due by Period
Contractual Obligations		Total			2016			2017-2018			2019-2020			Thereafter
Unsecured revolving credit facility(1)		$	835,000		$	-		$	-		$	835,000		$	-
Senior unsecured notes and term credit facilities:(2)
U.S. Dollar senior unsecured notes			6,200,000			400,000			900,000			1,050,000			3,850,000
Pounds Sterling senior unsecured notes(3)			1,548,330			-			-			-			1,548,330
Canadian Dollar senior unsecured notes(3)			216,779			-			-			216,779			-
U.S. Dollar term credit facility			500,000			-			-			500,000			-
Canadian Dollar term credit facility(3)			180,649			-			-			180,649			-
Secured debt:(2,3)
Consolidated			3,478,207			547,325			1,127,424			554,421			1,249,037
Unconsolidated			474,772			25,984			34,583			21,757			392,448
Contractual interest obligations:(4)
Unsecured revolving credit facility			33,642			5,624			22,495			5,523			-
Senior unsecured notes and term loans(3)			3,592,177			353,830			675,744			572,354			1,990,249
Consolidated secured debt(3)			720,472			147,884			213,257			130,951			228,380
Unconsolidated secured debt(3)			136,870			16,897			31,273			29,171			59,529
Capital lease obligations(5)			98,569			4,732			9,411			8,506			75,920
Operating lease obligations(5)			990,027			15,543			31,315			30,593			912,576
Purchase obligations(5)			549,676			211,635			332,024			6,017			-
Other long-term liabilities(6)			5,654			1,475			2,950			1,229			-
Total contractual obligations		$	19,560,824		$	1,730,929		$	3,380,476		$	4,142,950		$	10,306,468
(1) Relates to our unsecured revolving credit facility with an aggregate commitment of $2,500,000,000. See Note 9 to our consolidated financial statements.
(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(3) Based on foreign currency exchange rates in effect as of balance sheet date.
(4) Based on variable interest rates in effect as of balance sheet date.
(5) See Note 12 to our consolidated financial statements.
(6) Primarily relates to payments to be made under our Supplemental Executive Retirement Plan, which is discussed in Note 19 to the consolidated financial statements.

Capital Structure

Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2015, we were in compliance with all of the covenants under our debt agreements. Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. A summary of certain covenants and our results as of and for the year ended December 31, 2015 is as follows:

		Per Agreement
Covenant		Primary Unsecured Credit Facility		Senior Unsecured Notes		Actual At December 31, 2015
Total Indebtedness to Book Capitalization Ratio maximum		60%		n/a		46%
Secured Indebtedness to Total Assets Ratio maximum		30%		40%		12%
Total Indebtedness to Total Assets maximum		n/a		60%		45%
Unsecured Debt to Unencumbered Assets maximum		60%		n/a		39%
Adjusted Interest Coverage Ratio minimum		n/a		1.50x		4.57x
Adjusted Fixed Charge Coverage minimum		1.50x		n/a		3.61x

We plan to manage the Company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

On May 1, 2015, we filed with the Securities and Exchange Commission (1) an open-ended automatic or “universal” shelf

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan under which we may issue up to 15,000,000 shares of common stock. As of January 31, 2016, 11,743,723 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with each of UBS Securities LLC, KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $630,015,000 aggregate amount of our common stock (“Equity Shelf Program”). As of January 31, 2016, we had $392,617,000 of remaining capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our primary unsecured credit facility.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Summary

Our primary sources of revenue include rent, resident fees and services, and interest income. Our primary expenses include interest expense, depreciation and amortization, property operating expenses, transaction costs and general and administrative expenses. We evaluate our business and make resource allocations on our three business segments: triple-net, seniors housing operating and outpatient medical. The primary performance measures for our properties are NOI and SSCNOI, which are discussed below. Please see Note 17 to our consolidated financial statements for additional information. The following is a summary of our results of operations (dollars in thousands, except per share amounts):

			Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
			December 31,			December 31,								December 31,
			2013			2014			Amount			%		2015			Amount			%		Amount			%
Net income attributable to common stockholders			$	78,714		$	446,745		$	368,031		468%		$	818,344		$	371,599		83%		$	739,630		940%
Funds from operations				924,884			1,174,081			249,197		27%			1,409,640			235,559		20%			484,756		52%
Adjusted EBITDA				1,503,715			1,877,992			374,277		25%			2,278,930			400,938		21%			775,215		52%
Net operating income from continuing operations				1,673,795			1,940,188			266,393		16%			2,237,569			297,381		15%			563,774		34%
Same store cash NOI				1,145,629			1,192,245			46,616		4%			1,213,752			21,507		2%			68,123		6%
Per share data (fully diluted):
	Net income attributable to common stockholders		$	0.28		$	1.45		$	1.17		418%		$	2.34		$	0.89		61%		$	2.06		736%
	Funds from operations			3.32			3.82			0.50		15%			4.03			0.21		5%			0.71		21%
Adjusted interest coverage ratio				3.23x			3.86x			0.63x		20%			4.57x			0.71x		18%			1.34x		41%
Adjusted fixed charge coverage ratio				2.56x			3.06x			0.50x		20%			3.61x			0.55x		18%			1.05x		41%

The following table represents the changes in outstanding common stock for the period from January 1, 2013 to December 31, 2015 (in thousands):

			Year Ended
			December 31, 2013		December 31, 2014		December 31, 2015		Totals
Beginning balance			260,374		289,564		328,790		260,374
Public offerings			23,000		33,925		19,550		76,475
Dividend reinvestment plan issuances			3,430		4,123		4,024		11,577
Senior note conversions			988		259		1,330		2,577
Preferred stock conversions			117		233		-		350
Issuances in acquisitions of noncontrolling interests			1,109		-		-		1,109
Option exercises			214		498		249		961
Equity Shelf Program issuances			-		-		696		696
Other, net			332		188		139		659
Ending balance			289,564		328,790		354,778		354,778
Average number of shares outstanding:
	Basic		276,929		306,272		348,240
	Diluted		278,761		307,747		349,424

During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, a large portion of our earnings are derived primarily from long-term investments with predictable rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes, secured debt and borrowings under our primary unsecured credit facility. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Triple-net

The following is a summary of our NOI for the triple-net segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2013			2014			$			%		2015			$			%		$			%
SSCNOI(1)				$	671,609		$	690,941		$	19,332		3%		$	712,806		$	21,865		3%		$	41,197		6%
Non-cash NOI attributable to same store properties(1)					37,153			55,531			18,378		49%			72,666			17,135		31%			35,513		96%
NOI attributable to non same store properties(2)					185,859			280,662			94,803		51%			414,829			134,167		48%			228,970		123%
NOI				$	894,621		$	1,027,134		$	132,513		15%		$	1,200,301		$	173,167		17%		$	305,680		34%
(1) Change is due to increases in cash and non-cash NOI (described below) related to 496 same store properties.
(2) Change is primarily due to the acquisition of 211 properties, the conversion of 23 construction projects into revenue-generating properties subsequent to January 1, 2013 and the transition of 38 properties from our seniors housing operating segment on September 1, 2013.

The following is a summary of our results of operations for the triple-net segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2013			2014			$			%		2015			$			%		$			%
Revenues:
	Rental income			$	866,138		$	992,638		$	126,500		15%		$	1,119,322		$	126,684		13%		$	253,184		29%
	Interest income				28,214			32,255			4,041		14%			74,108			41,853		130%			45,894		163%
	Other income				1,504			2,973			1,469		98%			6,871			3,898		131%			5,367		357%
					895,856			1,027,866			132,010		15%			1,200,301			172,435		17%			304,445		34%
Property operating expenses					1,235			732			(503)		-41%			-			(732)		-100%			(1,235)		-100%
	Net operating income from continuing operations (NOI)				894,621			1,027,134			132,513		15%			1,200,301			171,703		17%			305,680		34%
Other expenses:
	Interest expense				23,322			38,460			15,138		65%			30,288			(8,172)		-21%			6,966		30%
	Loss (gain) on derivatives, net				4,877			(1,770)			(6,647)		n/a			(58,427)			(56,657)		3201%			(63,304)		-1298%
	Depreciation and amortization				249,913			273,296			23,383		9%			294,484			21,188		8%			44,571		18%
	Transaction costs				24,426			45,146			20,720		85%			53,254			8,108		18%			28,828		118%
	Loss (gain) on extinguishment of debt, net				40			98			58		145%			10,095			9,997		10201%			10,055		25138%
	Provision for loan losses				2,110			-			(2,110)		-100%			-			-		n/a			(2,110)		-100%
	Impairment of assets				-			-			-		n/a			2,220			2,220		n/a			2,220		n/a
	Other expenses				-			8,825			8,825		n/a			35,648			26,823		304%			35,648		n/a
					304,688			364,055			59,367		19%			367,562			3,507		1%			62,874		21%
Income from continuing operations before income taxes and income (loss) from unconsolidated entities					589,933			663,079			73,146		12%			832,739			169,660		26%			242,806		41%
Income tax benefit (expense)					(1,817)			6,141			7,958		n/a			(4,244)			(10,385)		-169%			(2,427)		134%
Income (loss) from unconsolidated entities					5,035			5,423			388		8%			8,260			2,837		52%			3,225		64%
Income from continuing operations					593,151			674,643			81,492		14%			836,755			162,112		24%			243,604		41%
Discontinued operations, net					57,742			7,135			(50,607)		-88%			-			(7,135)		-100%			(57,742)		-100%
Gain (loss) on real estate dispositions, net					-			146,205			146,205		n/a			86,261			(59,944)		-41%			86,261		n/a
Net income					650,893			827,983			177,090		27%			923,016			95,033		11%			272,123		42%
Less: Net income attributable to noncontrolling interests					1,558			1,874			316		20%			6,348			4,474		239%			4,790		307%
Net income attributable to common stockholders				$	649,335		$	826,109		$	176,774		27%		$	916,668		$	90,559		11%		$	267,333		41%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed triple-net properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2015, we had no lease renewals but we had 16 leases with rental rate increasers ranging from 0.01% to 0.32% in our triple-net portfolio.

The increase in interest income is attributable to investments in new loans and draws on existing loans in the current year, which includes a first mortgage loan to Genesis Healthcare to facilitate their merger with Skilled Healthcare Group. The increase in other income year-to-date over the prior year includes the receipt of an early prepayment fee related to a real estate loan receivable.

During the year ended December 31, 2015, we completed five triple-net construction projects representing $104,844,000 or $234,027 per bed/unit plus expansion projects totaling $38,808,000. The following is a summary of triple-net construction projects pending as of December 31, 2015 (dollars in thousands):

Location		Units/Beds			Commitment			Balance		Est. Completion
Edmond, OK		142		$	24,500		$	11,667		3Q16
London, England		79			29,492			16,240		3Q16
Carrollton, TX		104			18,900			7,681		3Q16
Piscataway, NJ		124			30,600			19,386		4Q16
Raleigh, NC		225			93,000			42,707		4Q16
Tulsa, OK		145			25,800			6,290		4Q16
Livingston, NJ		120			51,440			19,453		1Q17
Bracknell, England		64			16,293			7,080		1Q17
Lancaster, PA		80			15,875			2,725		1Q17
Lititz, PA		80			15,200			2,763		1Q17
Total		1,163		$	321,100		$	135,992

Total interest expense represents secured debt interest expense and interest expense on capital lease obligations. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, extinguishments and principal amortizations. The following is a summary of our triple-net secured debt principal activity (dollars in thousands):

		Year Ended					Year Ended					Year Ended
		December 31, 2013					December 31, 2014					December 31, 2015
					Weighted Avg.					Weighted Avg.					Weighted Avg.
		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
Beginning balance		$	218,741		5.393%		$	587,136		5.394%		$	670,769		5.337%
Debt transitioned			367,997		5.298%			-		0.000%			-		0.000%
Debt issued			13,800		5.480%			-		0.000%			-		0.000%
Debt assumed			9,578		5.582%			120,352		5.404%			44,142		5.046%
Debt extinguished			(16,482)		3.304%			(22,970)		6.235%			(132,545)		4.695%
Foreign currency			-		0.000%			(2,180)		5.317%			(15,633)		5.315%
Principal payments			(6,498)		5.698%			(11,569)		5.564%			(12,719)		5.450%
Ending balance		$	587,136		5.394%		$	670,769		5.337%		$	554,014		5.488%
Monthly averages		$	339,129		5.394%		$	596,941		5.381%		$	551,803		5.518%

In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature. This event resulted in $58,427,000 gain. During the fourth quarter of 2015, the cost basis of this investment exceeded the fair value. Management

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

performed an assessment to determine whether the decline in fair value was other than temporary and concluded that it was. As a result, we recognized an other than temporary impairment charge of $35,648,000 which is recorded in other expense.

Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions of newly constructed properties. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

Transaction costs represent costs incurred with property acquisitions including due diligence costs, fees for legal and valuation services, the termination of pre-existing relationships, lease termination expenses and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt.

Changes in gains on sales of properties are related to the volume of property sales and the sales prices. We recognized impairment losses on certain held-for-sale properties as the fair value less estimated costs to sell exceeded our carrying values. The following illustrates the reclassification impact as a result of classifying the properties sold prior to or held for sale at December 31, 2013, as discontinued operations for the periods presented (dollars in thousands):

			Year Ended December 31,
			2013			2014			2015
Rental income			$	8,987		$	881		$	-
Expenses:
	Interest expense			2,566			157			-
	Provision for depreciation			5,304			-			-
Income (loss) from discontinued operations, net			$	1,117		$	724		$	-

During the year ended December 31, 2013, we wrote off one loan related to an active adult community. During the years ended December 31, 2014 and 2015, we did not record a provision for loan loss or have any loan write-offs. The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed in “Critical Accounting Policies” and Note 6 to our consolidated financial statements.

A portion of our triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Seniors Housing Operating

The following is a summary of our NOI for the seniors housing operating segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2013			2014			$			%		2015			$			%		$			%
SSCNOI(1)				$	252,802		$	274,377		$	21,575		9%		$	267,431		$	(6,946)		-3%		$	14,629		6%
NOI attributable to non same store properties(2)					275,361			356,886			81,525		30%			433,831			76,945		22%			158,470		58%
NOI				$	528,163		$	631,263		$	103,100		20%		$	701,262		$	69,999		11%		$	173,099		33%
(1) Due to increases in cash revenues (described below) related to 116 same store properties.
(2) Primarily due to the acquisition of 271 properties subsequent to January 1, 2013 and the transition of 38 properties to our triple-net segment on September 1, 2013.

The following is a summary of our results of operations for the seniors housing operating segment (dollars in thousands):

			Year Ended							One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2013			2014			$			%		2015			$			%		$			%
Revenues:
	Resident fees and services			$	1,616,290		$	1,892,237		$	275,947		17%		$	2,158,031		$	265,794		14%		$	541,741		34%
	Interest income				757			2,119			1,362		180%			4,180			2,061		97%			3,423		452%
	Other income				355			3,215			2,860		806%			6,060			2,845		88%			5,705		1607%
					1,617,402			1,897,571			280,169		17%			2,168,271			270,700		14%			550,869		34%
Property operating expenses					1,089,239			1,266,308			177,069		16%			1,467,009			200,701		16%			377,770		35%
	Net operating income from continuing operations (NOI)				528,163			631,263			103,100		20%			701,262			69,999		11%			173,099		33%
Other expenses:
	Interest expense				92,148			113,099			20,951		23%			147,832			34,733		31%			55,684		60%
	Loss (gain) on derivatives, net				(407)			275			682		-168%			-			(275)		-100%			407		-100%
	Depreciation and amortization				478,007			418,199			(59,808)		-13%			351,733			(66,466)		-16%			(126,274)		-26%
	Transaction costs				107,066			16,880			(90,186)		-84%			54,966			38,086		226%			(52,100)		-49%
	Loss (gain) on extinguishment of debt, net				(3,372)			383			3,755		-111%			(195)			(578)		-151%			3,177		-94%
	Other expenses				-			1,437			1,437		n/a			-			(1,437)		-100%			-		n/a
					673,442			550,273			(123,169)		-18%			554,336			4,063		1%			(119,106)		-18%
(Loss) income from continuing operations before income from unconsolidated entities					(145,279)			80,990			226,269		-156%			146,926			65,936		81%			292,205		-201%
Income tax expense					(5,337)			(3,047)			2,290		-43%			986			4,033		-132%			6,323		-118%
(Loss) income from unconsolidated entities					(22,695)			(38,204)			(15,509)		68%			(32,672)			5,532		-14%			(9,977)		44%
Net income (loss)					(173,311)			39,739			213,050		-123%			115,240			75,501		190%			288,551		-166%
Less: Net income (loss) attributable to noncontrolling interests					(8,639)			(2,335)			6,304		-73%			(1,438)			897		-38%			7,201		-83%
Net income (loss) attributable to common stockholders				$	(164,672)		$	42,074		$	206,746		-126%		$	116,678		$	74,604		177%		$	281,350		-171%

Fluctuations in revenues and property operating expenses are primarily a result of acquisitions subsequent to January 1, 2013, partially offset by the transition of 38 properties to triple-net on September 1, 2013. The increase in other income for the year ended December 31, 2015 is primarily a result of insurance proceeds received relating to a property. The fluctuations in depreciation and amortization are due to the net impact of acquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. Losses from unconsolidated

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

entities are primarily attributable to depreciation and amortization of short-lived intangible assets related to our investments in unconsolidated joint ventures with Chartwell in 2012, Sunrise in 2013 and Senior Resource Group in 2014.

During the year ended December 31, 2015, we completed one seniors housing operating construction project representing $19,869,000 or $283,843 per unit. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of December 31, 2015 (dollars in thousands):

Location		Units/Beds			Commitment			Balance		Est. Completion
Camberley, England		102		$	20,459		$	18,755		4Q16
Bushey, England		95			58,403			14,070		2Q18
Chertsey, England		93			45,612			12,446		3Q18
Total		290		$	124,474		$	45,271

Interest expense represents secured debt interest expense as well as interest expense related to all foreign senior unsecured debt. Please refer to Note 10 to our consolidated financial statements for additional information. The increases in interest expense are attributed primarily to the £550,000,000 Sterling-dominated senior unsecured notes issued in November 2013, the £500,000,000 Sterling-dominated senior unsecured notes issued in November 2014, and the $300,000,000 Canadian-denominated senior unsecured notes issued in November 2015. The following is a summary of our seniors housing operating property secured debt principal activity (dollars in thousands):

		Year Ended						Year Ended					Year Ended
		December 31, 2013						December 31, 2014					December 31, 2015
					Weighted Avg.						Weighted Avg.					Weighted Avg.
		Amount			Interest Rate			Amount			Interest Rate		Amount			Interest Rate
Beginning balance		$	1,369,526		4.874%			$	1,714,714		4.622%		$	1,654,531		4.422%
Debt issued			75,408		4.891%				109,503		3.374%			228,685		2.776%
Debt assumed			1,228,706		4.063%				18,484		4.359%			842,316		3.420%
Debt extinguished			(548,876)		3.597%				(114,793)		3.626%			(285,599)		4.188%
Debt transitioned			(367,997)		5.298%				-		0.000%			-		0.000%
Foreign currency			(10,361)		4.013%				(39,379)		3.727%			(110,691)		3.625%
Principal payments			(31,692)		4.643%				(33,998)		4.296%			(38,690)		4.126%
Ending balance		$	1,714,714		4.622%			$	1,654,531		4.422%		$	2,290,552		3.958%
Monthly averages		$	1,723,122		4.820%			$	1,657,416		4.515%		$	1,894,609		4.261%

The fluctuations in gains/losses on debt extinguishments is primarily attributable the volume of extinguishments and terms of the related secured debt. Transaction costs represent costs incurred with property acquisitions (including due diligence costs, fees for legal and valuation services, and termination of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The majority of our seniors housing operating properties are formed through partnership interests. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss related to those partnerships where we are the controlling partner.